10 Steps from Contract to Closing Day

Home Inspection

A home inspection takes place soon after the contract is signed and can determine the direction of the deal.

It is vital for safety and quality assurance as it is a physical property assessment. The inspector checks the structure from top to bottom, including:

• Walls
• Ceilings
• Floors
• Foundation
• Windows
• Doors
• Roofs
• Plumbing
• Mechanical and electrical systems
• Appliances

The inspection is conducted by a professional; it is a crucial step that needs to take place to discover if there are any potential problems with the property.

A home inspection protects the buyer. If the inspector finds a serious problem during the inspection, the purchaser can back out of the deal or ask the seller to make the necessary repairs based on the findings.

Appraisal

A home appraisal is when a licensed or certified appraiser determines an unbiased and fair market value of a home.

The appraisal is based on recent sales of comparable homes in the area, an examination of the property, and the appraiser’s judgment. It assures the buyer and, more importantly, the lender, that the price you have agreed to pay for the property is fair.

The appraisal determines property taxes, and mortgage lenders require it to help measure the risk of making a loan. The buyer or the mortgage lender orders the appraisal, and the homebuyer is responsible for paying for it as one of the closing costs.

It is important to note the appraiser does not make any recommendations for repairs and is solely to assess a fair market value.

Performing the Title Search and Preparing Title Insurance

A title company will need to perform a title search to examine public records to verify that the seller has the right to sell the property and the buyer has the right to purchase it. A title search also reveals if there are any claims against the property that may influence purchasing it or may cause title issues in the future.

If issues are discovered during the title search process, the title company can perform curative work to present a clear title at closing. Once this process is complete, the title company will issue a Commitment for Title Insurance.

Almost all lenders will require lender’s title insurance. Owner’s title insurance is not required, but it is highly recommended and protects purchasers from hidden risks to the title for as long as you own your home.

Loan Processing and Underwriting

Most people who buy a home will need a mortgage to finance the purchase. The borrower will need to submit a loan application, providing personal and financial information. The lender will assess the borrower’s creditworthiness, employment history, income, and debt levels to determine their ability to repay the loan. This pre-approval process gives the borrower an idea of the loan amount they might qualify for. Many borrowers obtain pre-approval before shopping for a new home.

The pre-approval is just the first step. During underwriting, which happens after the borrower has signed a purchase agreement, the lender will conduct a more thorough review of the loan application. The lender will verify the information in the loan application, assess the property value, and ensure that the property is a sound investment.

If the underwriter determines that the borrower and the property meet the lender’s criteria, the loan will be approved.

Negotiate Repairs

If the property you want to purchase gets a clean bill of health during the home inspection, you will feel assured that your new property is safe and well-maintained.

But what happens if the inspection reveals repairs are required? The first thing to clarify is that the seller is under no legal obligation to conduct the repairs. However, you can negotiate with the seller to complete the repairs for the sale to go through.

When reviewing the inspection report, weigh the gravity of the repairs. If they are minimal, the buyer can request the seller make the repairs themselves. However, consider whether a credit towards closing costs suffice or a reduced price is necessary if they are significant.

Assuming there is a standard purchase agreement in effect, there will likely be a contingency clause that states the buyer can walk away from the deal if the issues found in the inspection are left unresolved.

Obtain Homeowner's Insurance

Homeowner’s insurance covers losses and damages to your house and assets in the home.

By law, you are not required to have homeowner’s insurance. However, most mortgage lenders will require you to have a homeowner’s insurance policy in place.

Your policy’s coverage is designed to safeguard your property and assets. The policy usually covers interior and exterior damage, loss or damage to personal assets, and injury that arises while on the property. Other structures such as tool sheds, detached garages, houses, and their contents are also covered.

Many people assume they do not need homeowner’s insurance if they have title insurance. Homeowner’s insurance is not the same as title insurance. Homeowner’s insurance protects against damage to your home or property, whereas title insurance protects the title (rights to own, sell, or use) for a piece of real property.

Homeowner’s insurance is paid annually and is only effective as long as you are paying the premium.

Prepare Closing Documents

Many documents need to be prepared for the closing of a real estate transaction, and each one serves a specific purpose. The closing agent will organize, complete, or approve the required documents.

Some of the documents that must be prepared and reviewed before closing include:

• Closing Disclosure. This contains the details of your mortgage, including an itemized list of closing costs. Both the buyer and seller will review and sign the closing disclosure.
• Deed. This official document transfers the ownership rights from the seller to the buyer. Only the seller needs to sign the deed.
  
• Title Documents. The seller will sign title documents stating that they own the property and that no one else has property rights. The buyer’s title documents will include the abstract of the title, title insurance policies, surveys, and other related documents.
  
• Proof of Homeowner's Insurance. Buyers should obtain their policy as soon as the closing date is agreed upon, and it should be ready to take effect from the closing date.
• Mortgage Payoff. The seller will receive a payoff letter from their mortgage company, and the existing loan needs to be paid at closing. The closing company is responsible for ensuring the funds get to the mortgage company in full once closing is complete.
• Loan Package. If you use a mortgage to purchase the property, they will review and sign the loan package. This will include the loan application, mortgage agreement, first payment letter, property tax documents, and other documents the lender requires.

Other documents may be required at closing that may be unique to your transaction. Your closing company will make you aware if there is anything you need.

Final Walkthrough

A final walkthrough is exactly what it sounds like. It allows a purchaser to inspect the property before closing and confirm everything is as expected. Once the deal is closed, it’s too late to address any issues; make sure to be attentive and thorough during the final walkthrough.

During the final walkthrough, look for the following things:

• The owner has completed inspection repairs
• Belongings have been removed (or left in place) as agreed upon in the contract
• Locks and windows are working correctly
• All appliances work as expected
• Look for potential mold issues, especially in moist areas such as the bathroom and kitchen
• Ensure that electricity and outlets are working correctly
• Verify that the yard is as expected and the gate latches are secure
• Keep an eye out for pests

The final walkthrough is your last chance to spot problems with the property and ensure the seller has finished all repairs.

Closing Day

Closing is one of the final steps in the real estate transaction. Documents are signed, funds are delivered, and property ownership is transferred from the seller to the buyer.

The buyer(s) and seller(s) must be present at the closing, and the relators representing each party can also attend.

Although each closing may have particular details, all real estate closings follow the same process:

• Collect Identification. The real estate attorney or closing company will collect a state-issued photo ID from all parties to ensure that the right people are present and verify that everyone is who they say they are.
• Review the settlement statement. Also known as the closing disclosure, the settlement statement identifies all of the closing costs, fees, disbursements, and the parties who are responsible for each. This is also known as a closing disclosure.
• Review and sign all other paperwork. Your closer will review and gather signatures for all other paperwork, including the loan package, deed, and title documents.
• Transfer ownership. The ownership transfer is complete when the seller delivers keys and garage door openers to the buyer.
  

Record the Sale and Disburse Funds

After the closing is finished, the sale is recorded and funds are disbursed.

The closing company will send the lender the documents in the closing package for approval. Only once the lender has approved the closing package is the title company free to disburse the funds to pay the seller’s mortgage or lines of credit or to deliver the proceeds to the seller. This process is in place to protect everyone involved and ensures that the correct person gets the correct funds.

The title company will also record the sale and documents, such as the deeds, mortgages, and powers of attorney with the local county. Recording is vital as it creates a chain of title that is traceable to the property and helps verify a history of ownership.

Real estate transactions are complex and require expertise and a detail-oriented approach. Make sure you have a trusted partner on your side to get you from the signed contract to closing day. At South Oak, we aim to make the entire closing process enjoyable and stress-free for realtors, lenders, and their clients.

Schedule a closing today, or contact our team to learn more about how we can help you have your best closing experience ever at South Oak.