The final days before closing on a home is a busy and emotional period for both the home buyer and seller. The home buyers may be wondering if they made the right decision or about making their new mortgage payment. The sellers may be worrying about all the paperwork on both ends being submitted and approved, and about moving into their new home.
Closing on a home means that the sale is complete, and all the terms and conditions of the purchase agreement have been met and the sellers give the buyers marketable title to the property. Closing costs are the total cost of completing the transfer of ownership of a home or property. These costs are extra fees and expenses aside from the purchase price.
On average, closing costs range from three percent to five percent of the total loan amount. For example, for a loan of $300,000, closing costs might run in the $12,000 range.
The signed sales contract and the signed loan commitment letter obligate both the homebuyer and seller to complete the transaction. Failure to do so will cause the buyer to forfeit the deposit, and perhaps be slapped with a lawsuit.
After the contract contingencies are settled, but before the close of the home sale, several tasks need to be completed. Beyond some obvious steps like setting up movers, forwarding your mail, and canceling your utilities, here are 10 steps you’ll also want to expect prior to closing:
Set the Closing Date
The closing date is set after your mortgage loan has been approved and you accept the commitment letter. Your agent will coordinate this date with you, the seller, your lender, and the closing agent. Your signature will have to be notarized when you sign closing documents, so remember to bring your driver's license or other accepted identification with you to the actual signing.
Meet Conditions of the Loan Officer
Understand the conditions of the loan offer that are stated in the mortgage lender's commitment letter. If the home you are buying has been found to be in violation of a building code or zoning regulation, the commitment letter may specify that those problems must be corrected before the closing. If the seller has agreed to make repairs required by the lender, you will want to make sure the work is finished (and done properly) before closing.
Secure the Services
Before the closing, a title search on the property is required. Mortgage lenders require a title search to ensure the borrower receives a clean title, establish that the seller is indeed the owner of the property, and confirm that there are no liens filed against the property. You'll also need to decide how you want to hold title to the property (e.g. in a trust). The way you hold title to property has estate planning and tax implications, so you may opt to consult with a specialized accountant or attorney.
To further insure that the seller is handing over a clean title, the lender will require title insurance. There are two types of policies that the buyer can purchase: a lender's policy and an owner's policy. The lender's policy protects the lender in the event a flaw in the title is detected after the property has been bought. The owner's policy protects the buyer. Obtaining a combined lender's-owner's policy could save money.
When buying a home, a termite inspection may be required, depending on where you live. The seller usually covers the cost of this inspection. Once completed, the homebuyer receives a certificate stating that the property is free of termites and termite damage.
Mortgage lenders require homeowner's insurance, which protects the buyer and the mortgage lender from loss in the event the house is damaged or destroyed. Ask your agent or mortgage lender, or get quotes on your own. If you do obtain insurance on your own, bring the insurance policy and paid receipt with you to the closing.
When buying a new home, look into purchasing a homeowner's warranty, which protects against certain defects in your home. If buying an older home, or if you are a first-time buyer, you may especially want to be covered for repairs of major systems like plumbing, heating and air conditioning.
Final Walk-Through Inspection
Make sure that your contract allows you to examine the property within 24 hours prior to closing. This is the buyer's last chance to make sure that everything works, and that the seller has vacated the house, leaving the appliances or property in agreed upon terms. If, during the walk-through, the buyers find major problems or violations of the purchase contract, they have the right to hold up the settlement until things are fixed.
House Tour With Seller
If the seller is willing, it is wise to tour the house with the seller either before or shortly after the closing to learn peculiarities of the home. Get the names and phone numbers of contractors, electricians, plumbers, roofers, and carpenters who have worked on the house. Also get copies of operating and instruction manuals for appliances, and security and irrigation systems.
Final Estimate of Closing Costs
The mortgage lender is required to give the buyer an estimate of closing costs soon after the loan application has been filed. The buyer will usually be required to pay the remainder of the down payment at this time, not including the deposit, and closing costs. Personal checks are not accepted so be prepared with a certified or cashier's check.