You feel so close to the finish line. After an exhaustive search, you finally found the home that’s perfect for you. The unnerving wait to get your loan approved has passed. It’s almost time to move in, so close that your mind is consumed by packing details and decorating ideas. But one final step should be foremost in the minds of homebuyers at this point: closing your loan.
What happens during the run-up to closing day?
Closing day, when the buyer takes ownership of a home, usually happens about four to six weeks after a purchase and sale agreement (or PSA) is signed. During this part of the closing process, the funds of the buyer sit in an escrow account while all the conditions, such as an inspection and an appraisal, are met.
What to Expect with a Home Inspection
Unlike appraisals, home inspections aren’t always required by lenders as a condition of approving a mortgage loan. But it’s still a smart idea for any would-be homeowner to get an inspection; even if the inspection doesn’t reveal any issues, the cost is worth the peace of mind alone. Inspections usually go over the big basics such as structural integrity of the house, the electrical, heating, and cooling systems, plus any major appliances. For identifying asbestos, mold, lead, and pest issues, you’ll have to get a specialized inspector.
How much should you expect to pay? That varies, but typical pricing ranges from $200 to $500, depending on the size of the house, the skill level of the inspector, and the kind of inspection you want — standard or specialized. There is no federal standard for licensing home inspectors, so it’s state-by-state whether home inspectors need to be licensed.
What should you know about the appraisal?
As a home appraisal ensures that you and your lender don’t overpay for a property, it’s a required and necessary part of the process. While your lender will order the appraisal, bear in mind that the appraiser is totally independent, barred by law from being affiliated with the lender or the buyer to guarantee neutrality and fairness in the process. You can expect to pay anywhere between $300 and $450 for the appraisal.
And after you get the appraiser’s valuation? If you’re lucky, the appraiser will value the house as being worth more than the agreed-on purchase price. You can then celebrate the good news that you’ve got more equity in your soon-to-be home than you previously thought. If the appraiser comes back with a value that’s lower than the purchase price, that’s not-so-good news; lenders often won’t lend more than a house is worth. That leaves you with a few options: you can come up with the cash to make up the price difference; you can negotiate a lower price with the seller; or you can walk away.
While the Underwriting is Underway
As you’re focused on the appraisal and inspection, your lender will be busy underwriting the loan, verifying information such as your income, debts, assets, and other details that are necessary for the final approval of the loan. While most of this work will be out of your hands, your lender may need additional information from you, such as the sources of your bank deposits or proof of your assets. You should fulfill these requests promptly to keep the date of your closing day on track.
Also, during this period, it’s important to maintain stability with your spending and all financial moves. This means no new loans or new lines of credit and no big purchases that could have an impact on your overall assets. The amount a lender is willing to loan is calculated using your DTI, or debt-to-income ratio; any change in the ratio could mean a change in your mortgage loan and could sink the entire deal if your DTI ratio goes beyond 45%.
Getting Your Closing Disclosure
Three business days before closing, you’ll get a Closing Disclosure document, which lays out the closing costs and terms of the loan. So you’ve got three days to review the details, which should track closely with the Loan Estimate you got from your lender when you applied for the loan. If there are discrepancies, say the closing costs are 10% higher or more, you may wish to go back to your lender for clarification and review. Keep in mind that as you’re 72 hours or fewer from the closing at this point, issues with the Closing Disclosure stand a good chance of delaying the closing date.
The Final Walk-Through
Most home sales include a walk-through that happens 24 hours before closing. It’s the final chance to make sure that any repairs that were agreed on are done and that everything is in good condition. Hopefully, all the issues have been resolved before this late step, so the walk-through is usually just to offer a sense of assurance to the buyer. But if issues do arise, such as incomplete repairs or something that was included in the deal that isn’t there, the real estate agent can usually take point on the resolution.
What to Expect on the Big Day
Your closing will probably happen at the office of the title company, at a real estate agent’s office, or perhaps at the office of an attorney. Those in attendance usually include the seller and buyer and their respective agents, a representative from the title company, and a loan officer. Your closing checklist should include all the documents related to the sale, proof you have homeowners insurance, a copy of the purchase contract, and your government-issued photo ID. Plus, if your closing costs aren’t rolled into the loan, a cashier’s check or proof of a wire transfer to cover these costs. There will be lots of documents to sign, and you should read them all, as the documents are legally binding and lay out your financial responsibilities. Because of this, closing usually takes a few hours.
And Then… Welcome Home!
With keys in hand, it’s time to enjoy your new house! For many, it’s been a months long journey from first looking to move-in day. So relish these precious moments at the start of a new phase of your life.
