Thursday, May 3, 2007

Adventures in First-Time Homebuying #8: Countdown to Closing

Author: Nick
Category: Money

jumping the hurdles on your way to closing

Photo by tomeppy

So you made an offer on a home and it was accepted. Your work is done until closing day. Time to sit back and start dreaming of how you’re going to repaint those hideous neon green walls.

Okay, I lied. You still have lots to do before closing. Here’s a brief rundown of everything you’ll need to get done in the weeks before you get the keys to your new place. We’ll go into some of these in more detail in future episodes.

Give your lender the order to proceed

All that work you went through to get a pre-approval makes this step pretty easy. If you haven’t made a final selection between multiple mortgage lenders, now is the time to do so. Next, simply call them up (or have your real estate agent make the call) and tell them to begin processing your application. You will need to supply some additional information specific to the house you are planning to purchase. With that information, your lender will do the following:

  • Order an appraisal. Your lender wants to make sure the house is worth what you’re planning to pay for it. Your lender typically won’t lend you more than the fair market value of your home since they have no way of securing loan dollars in excess of the property value. Be careful here; some lenders have been known to artificially inflate appraisals to approve loans when the house isn’t worth the price being paid.
  • Send out the underwriters. These people will scour every bit of your application and supplied information to confirm that it’s all complete and accurate. Assuming you didn’t lie or add an extra zero to your income figure by accident, this part should proceed smoothly.
  • Order a title search. Your lender wants to confirm that the house is the sellers’ to sell and that there aren’t any debts attached to it that might surprise you. You also get to pay for some insurance (creatively called “title insurance”) in case something crazy happens down the road and it turns out the house really belongs to someone else. Your bank will require a title insurance policy, and you’ll want to get one for yourself. You pay for both.
  • Miscellaneous extras. The lender will usually order a flood certification to see if your home is in an area likely to flood; if so, you’ll need to purchase a separate flood insurance policy. Many lenders also want a survey done to ensure the house isn’t violating property lines.

Oh, and even though most of these are lender requirements, you still get to pay for them. The charges will show up at closing time.

Once all this is done, your lender will let you know that your mortgage loan is approved and that the funds will be waiting for you at closing.

Arrange closing

Believe it or not, there are entire companies devoted to handling your closing day. Most closing agencies are run by lawyers since the whole process of closing on a home is legally complicated. To find a closing agency, ask friends or family in the area who they used to close. You can also ask your real estate agent for the name of a closer since he or she has probably worked with many of them and knows who the good ones are.

Your real estate agent will set things up with the closing agency. Your main job here is to show up on closing day and pay the agency’s fee.

Important note: even if your closing agent is an attorney, he or she is not your attorney. If anything, the closing agent represents the lender. Feel free to bring your own attorney to closing. Some states require you to have an attorney throughout the whole homebuying process; ours doesn’t, so we did not obtain one, and things still went fine for us.

Home inspection

An entire upcoming episode will be dedicated to the home inspection process. For now, just be aware that this is something you’ll want to get done in the first few days after an offer is accepted.

Arrange moving

This is another topic we’ll cover more later, but you should begin the arrangements for moving from your current residence early in the closing timeline. Unless you’re using a full-service mover, you should also start packing right away. Don’t wait to pack until the week before you close because that’s one of the busiest weeks in the closing timeline.

Get homeowners insurance

If you’re going to be a first-time homeowner, chances are you currently have renters insurance or no insurance at all. Homeowners insurance is similar to renters, but it’s more expensive and there are a few extra components. Most notably, you’ll now need to insure your structure and not just your belongings, and you’ll want to carry some liability insurance.

Here’s a great guide to saving money on homeowners insurance. One of the most important notes in this guide is insuring your property for the correct amount. You don’t need to insure your $300,000 single family home for $300,000 since the purchase price is for the structure and land. Even if aliens beam your house into space, the land will still be there, so only insure up to the value of the structure. If you’re not sure how much the structure is worth, you can get a good estimate from tax records or a slightly less accurate figure by multiplying the square footage by local building costs (mine’s around $75 per square foot).

As with any insurance policy, shop around for the best price.

Transfer utilities and give your landlord notice

Call the local utility companies at least a few weeks before your move-in date to set up gas, electric, and other services. You may need to contact the city to set up some services like trash, water, and sewage.

Don’t forget to cancel utilities where you currently live as you will likely be responsible for charges incurred after you move out if you don’t. Some utilities require days or even weeks notice for cancellations, so plan ahead. I recommend setting the shut-off date at least a couple days after closing just in case something goes wrong on closing day and things get delayed.

While you’re at it, remember to notify your landlord of your intention to vacate.

Put together a shopping list

Depending on your current type of residence and the kind of home you’re planning to buy, you might need to pick up some items in your first few weeks of occupancy. For example, if you live in an apartment and are purchasing a house on half an acre, you’re going to need a lawnmower.

Here’s a quick list of some items that, based on your situation, you may want to acquire before or soon after move-in:

  • New locks and keys
  • Lawn and garden equipment
  • Paint and other redecorating supplies
  • Set of tools
  • Curtains, blinds, shades, etc.
  • Snow shovel

Before dropping a ton of cash at a home improvement store, look into picking up some of these items from other places. Print and online classified, relatives and friends, and yard sales are great sources of used but still useful household items.

Schedule final walkthrough

Closing may still be weeks away, but you should allocate some time the morning of or day before closing to do a final walkthrough of the house. Consider this a mini-inspection designed to make sure the sellers have met all of their promises and the house is in the same shape it was when you put an offer on it.

Some specific things to check for during your walkthrough:

  • Make sure stuff still works. Flick the light switches, try the faucets, flush the toilets, turn the doorknobs, ring the doorbells. The final walkthrough is a sort of mini-inspection, and it’s your last chance to complain about broken items before you sign on the dotted line.
  • Confirm sellers have moved out and that they’ve taken all of their belongings with them. Sometimes the sellers will remain until after closing, so this point may not apply.
  • Take inventory. You probably agreed that certain items like appliances would be left by the sellers. Double-check that everything that is supposed to be there is still there.
  • Look for moving damage. Check for dents in floors or walls that may have been inflicted on the sellers’ move-out day. Some problems may be pre-existing but will only become apparent after rugs or furniture are removed.

Bring your real estate agent in case there are any last-minute issues that the sellers need to address. Your agent can phone the sellers’ agent immediately and get the ball rolling on such issues so that delays in closing can be avoided.

Other stuff

Some areas have special rules requiring you to jump through various flaming hoops of legalese before you move in. Your real estate agent will help you navigate local ordinances.

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