Buying a home is an exciting life event. However, it can be taxing and mysterious if it’s your first time purchasing a property. To ensure there are no last-minute hiccups, here’s a house closing checklist to guide you through your home purchasing process.
Determine how much you can afford
It’s recommended that your total household expenses should not exceed 28% of your gross income. This means that all of your housing expenses, such as maintenance, mortgage payments, and taxes, should not exceed 28% of your income. Additionally, your total household debt should not exceed 36% of your gross income.
Knowing what you can afford will help you make smart financial decisions when it comes time to purchase a home.
Getting pre-approved from a lender can help boost your confidence during the home buying process. Lenders will review your income, expenses, employment and credit history, and overall financial health. Upon completion of the pre-approval procedure, you’ll know exactly how much you can borrow and the interest rates you’ll be offered.
Start your home search
Starting your home search online is a fast and easy way to begin your house hunt. It will give you an idea of what’s available in your price range and desired community. You can then hire a realtor or complete your home search alone.
If you choose to hire a realtor, they may be able to help you broaden your search and ease the entire process. Keep in mind, realtors can cost anywhere from 3% to 6% of the purchase price of your home. Depending on your home buying knowledge, it may be wise to enlist the help of a professional to streamline your home buying journey.
Make an offer
Once you find a home, it’s time to make an offer. If you’ve hired a realtor, they’ll help you prepare the offer, which includes contingencies, closing deadlines, and obtaining disclosures. During this time, be prepared to negotiate the sale price. The seller may provide a counteroffer.
After you’ve come to an agreement, it’s time to begin sealing the deal. You’ll need to complete a home inspection and appraisal to make sure you’re confident in moving forward with the home sale.
Take care of all contingencies
Contingencies protect the buyer in the case they need to back out of the home sale, due to something going wrong. Generally, these provisions allow for the buyer to keep their earnest money. Sellers may continue to take other offers, but they won’t move forward with another buyer until the current offer moves forward or cancels.
Here are some of the most common contingencies:
Home inspection: This contingency allows for the buyer to complete a home inspection before the purchase of the home. If the home inspector finds issues with the home, you can cancel the contract or ask the seller to make repairs.
It’s not recommended to waive a home inspection contingency. According to Bankrate, the average home inspection can cost anywhere from $350 to $600. While this may seem expensive, it will save you from unwanted home issues that could end up costing thousands.
Appraisal: An appraisal contingency allows your mortgage lender to hire a third party to evaluate the value of your new home. If the appraisal value is less than the sale price, you can choose to walk away from the sale contract.
Financial: If you find the home of your dreams prior to a mortgage approval, this contingency allows the buyer to back out if lending falls through. You don’t want to get stuck purchasing a home without the proper funding.
Ensure the title is free and clear
When you purchase a home, you establish legal ownership by taking the title. To make sure your title is free and clear of any liens or tax burdens, your mortgage lender will conduct a title search. At this time, you’ll have to purchase title insurance. While traditional insurance policies protect the owner against future losses, title insurance protects owners against claims for past incidents.
When you use a lender to purchase your home, title insurance is a requirement. A financial institution will not lend you money without the guarantee that either you or the lender have sole ownership of the property.
As the home buyer, you can select the insurance company you want to work with. Rates can vary depending on lenders. It’s important to do your own research and not rely on the lender your realtor recommends. Take the time to check the reputation of each company.
Conduct the final mortgage approval
Prior to heading to the closing table, you’ll need to finalize your mortgage approval. This means you’ll have to complete the underwriting process. During this process, underwriters will ensure you have been truthful on your loan application and didn’t provide misleading information.
The underwriters assigned to your application will review your financial health which includes your credit score, your appraisal, and verify your financial situation is the same it was when you received your pre-approval.
The underwriting process usually happens right before you buy a home so it’s recommended to keep your credit score intact. This means it may not be wise to make any other large purchases or default on credit payments.
Review your closing disclosure
A closing disclosure (or the HUD-1 settlement statement), outlines the terms and costs of your mortgage. It will also include your closing costs which can range from 2% to 5% of the purchase price of the home.
You’ll want to compare this document to your loan estimate and make sure there are no discrepancies. Unless you’ve locked in your rate prior to your home search, your interest rates may not match. If you spot other discrepancies, ask your lender to explain the variations.
Take this time to become crystal clear about the terms of your loan and what you can expect moving forward.
Take one last stroll through your new home
Most sale contracts allow you to walk through your new home 24 hours before closing. You want to make sure the sellers have vacated the property to conduct your final visit before they turn over the keys.
If you’ve requested repairs in the contract, this is a great time to conduct another home inspection to ensure repairs are complete. Your home inspector may charge a lower rate since they are only checking certain repairs instead of the entire home.
Close on your home
It’s important to know what to expect when closing day arrives. The more you know, the better prepared you’ll be. You’ll want to allow at least two hours for the entire closing process. In some states, the buyer and seller will complete the closing process together. In others, they’ll have separate closing appointments.
The buyer and seller will agree on a closing agent, which tends to be the title officer, an attorney, or an escrow company officer. The closing agent is a third-party participant who ensures everything is correct and complete. If this is your first home purchase, a realtor and attorney may need to be present.
You’ll also need to bring the following documentation to the appointment:P
- Photo identification: Your closing agent will notarize your signature on various documents, therefore the closing agent needs your photo ID to prove you are who you say you are.
- Funds: You’ll want to bring a certified check or cashier’s check to pay for your down payment as well as additional closing costs. Federal law requires that you’re told the amount you need to bring to the appointment at least one day before the settlement. They’ll inform you of the total amount as well as who you should make your check or checks payable to. If you plan to wire the money, you’ll want to do this a few days in advance. This will help you avoid any glitches that could hold up your payment.
- Proof of insurance: You’ll need to verify that you have purchased insurance and that it’s effective on your closing day. You may provide this information in advance, but it’s in your best interest to bring a copy just in case.
- Final sales contract: In case you need to compare this document with the details of your closing costs.
Depending on your situation, you may need to provide other documentation such as a divorce decree or revocable living trust documents. The closing agent will want to ensure all parties involved in the sale are present during the appointment.
Be prepared to read and sign a lot of documents. Your closing agent should guide you through the entire process and help answer any questions along the way. As soon as you’re done with your appointment, you’ll collect the key to your home.
Closing on a new home can be a stressful process. Understanding the appropriate steps to take can help you avoid potential mishaps along the way. As you go through the home buying process, do your research and ask questions.