First-Time Home Buyer Tip #10 - Prepare for Closing

Congrats on making it to the final tip in this first-time home buyer series! From learning when to transition from renting to buying, to now preparing for closing on your first home, you should have a general understanding of the home-buying process!

 

Tip #9 transitioned us from submitting an offer on a home to having that offer be accepted. You now have what is called an "executed contract", which is a contract made by two parties in which the terms are set to be fulfilled at a later date. The contract stipulates that both sides still have duties to perform before it becomes fully executed.

 

 

The contract will provide a timeline for finalizing your financing, inspecting the physical condition of the home, and planning for your move. Taking care of the final details to prepare for closing may also include:

 

• Due diligence – reasonable steps taken by a person in order to satisfy a legal requirement. By performing due diligence, you as the buyer will have fulfilled all of the duties and obligations outlined in your contract, and all contingency deadlines have been met (securing financing, etc.)

• If you fail to due diligence and do not hold up your end of what was agreed upon, you will be in default. Being in default means that you have failed to perform your legal duty. When a buyer defaults, the seller is able to keep the earnest money deposit (explained further below), sue for specific performance (seller files suit against the buyer asking the Judge to order that the buyer actually go to closing), or bring a lawsuit for damages.

• Two main parts of performing due diligence include:

• • Paying an "Option Fee" (amount will be negotiated) which allows you to have the option to back out of purchasing the home for any reason within the amount of time outlined in the contract. If you fail to deliver the option fee within the time outlined in the contract, you lose the right to your option period and must proceed by moving into the pending stage as you continue towards closing.

• • Paying "Earnest Money", also a negotiated amount (typically around 1-3% of the overall sales price), is a deposit made to the seller representing the buyer's good faith to buy a home. This money is deposited into an escrow account with the title company, seller's broker or escrow company until closing, where it is applied towards the buyer's closing costs unless the buyer defaults on the contract.

 

• When obtaining a mortgage, your lender will require and order an appraisal. If you are able to purchase your home without obtaining a mortgage, an appraisal is not required but is still recommended. Discover explains a home appraisal as the following -“A home appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth. All lenders order an appraisal during the mortgage loan process so that there is an objective way to assess the home’s market value and ensure that the amount of money requested by the borrower is appropriate.”

• For more information on the home appraisal process, here is a great article from Discover that covers some frequently asked questions.

 

• As you approach your close date, your lender will talk you through the current interest rate options and will advise you on the best timeframe to lock in your interest rate.

• Within 3 days of your close date, your lender will release a Closing Disclosure that will have your financing details outlined, and they will walk you through the document to explain what all of the information means.

 

After taking care of the steps above (and likely others depending on the terms outlined in your contract), you will be ready to close on your home! The closer at the title company and I will assist you in coordinating your closing appointment. You will then attend your closing appointment where you will bring your down payment in either a cashier’s check or via wire and sign closing documents. The lender will wrap up funding the loan, and you will be the proud new owner of your first home!

 

As you can see, there are a lot of moving parts to purchasing a home, but hopefully these tips give you a good idea about what to expect if you are considering becoming a home-owner. As always, my team and I are always here to answer questions, help connect you to a vendor, or begin this journey of buying a home with you! Please let us know if there's anything we can do to help serve you in any way.