Buying a home is an exciting and often life-changing decision. Once you’ve found your dream home and your offer has been accepted, the journey towards homeownership enters a crucial phase.
Known as “closing,” the period between an accepted offer and closing day is filled with essential tasks and processes that need to be completed to ensure a successful and smooth home purchase. From finalizing financing to conducting inspections, resolving any issues, and completing the necessary paperwork, each step plays a critical role in the overall process.
By understanding what happens during this phase, you can navigate through the journey with confidence, making your transition to homeownership a truly rewarding experience.
Before we get into the details about the various steps involved during the closing process, let’s acknowledge something that often gets overlooked. The home search process can be an emotional rollercoaster, sometimes filled with intense love for a particular house, letdown when your offer isn’t accepted, fear about the market, excitement about the prospect of homeownership — and the cycle continues. So when your offer is accepted, the adrenaline rush may start to wear off and you can be left with an overwhelming feeling of fear that you made the wrong decision. First of all, that is completely normal! Secondly, let us be the first to tell you that you made the right choice. With the expert guidance of your Realtor, you can be confident that this house was meant to be, and that the other houses had to fall through in order for this one to work. Not to mention, appreciation in real estate is almost guaranteed in the long run — especially in a market like Ann Arbor. So go ahead and let yourself feel all the emotions involved with such a large purchase, but have faith that you are exactly where you need to be.
During the period between an accepted offer and closing day, it is customary for the buyer to submit earnest money. Also called a “good faith deposit,” earnest money is a deposit made by the buyer to demonstrate their serious intent to purchase the property. The amount of earnest money is typically a percentage of the purchase price and is held in escrow until the closing. It serves as a form of assurance to the seller that the buyer is committed to the transaction. In the event that the buyer backs out of the deal without a valid reason, the earnest money may be forfeited. On the other hand, if the transaction successfully closes, the earnest money is usually applied towards the down payment or closing costs. The specific details regarding earnest money, including the amount and the conditions for its return or forfeiture, are outlined in the purchase agreement and may vary based on local customs and regulations.
One of the first things you’ll need to do after your offer is accepted is to finalize your financing. If you haven’t already been pre-approved for a mortgage, now is the time to do so. Work closely with your lender to gather all the necessary documents and information they require to process your mortgage application. This typically includes providing proof of income, employment verification, bank statements, and other financial details. Your lender will then evaluate your application, conduct an appraisal of the property, and issue a loan commitment letter if everything meets their requirements.
On that note, there are several things you should not do while in escrow:
- Apply for a new credit card
- Make major purchases, like a car
- Close or max out your existing credit cards
- Consolidate debt to fewer cards
- Ignore collections, judgments or reported tax liens
- Make large deposits into your bank or investment accounts
Another crucial step is signing up for home insurance. Home insurance provides protection against potential risks and damages to your property. It is essential to secure a policy before closing to ensure your new home is adequately protected from unforeseen events such as fire, theft, natural disasters, or liability claims. Shop around and compare quotes from different insurance providers to find a policy that suits your needs and budget. Factors such as the property’s location, age, construction type, and your desired coverage levels will influence the cost of insurance. Once you have chosen an insurance provider and policy, provide the necessary details to your lender and ensure proof of insurance is submitted before the closing day. This step demonstrates your financial preparedness and safeguards your investment in the new home.
During this period, it is crucial to have a home inspection conducted by a qualified inspector. The inspector will thoroughly assess the property’s condition, including its structure, electrical systems, plumbing, and overall safety. Be prepared that your inspector will likely uncover several “issues” with the home — both major and minor. Either the inspector or your agent can explain to you which issues are most important and what the repairs might cost — and which findings are less problematic. You may also negotiate with the seller for repairs or a reduction in the purchase price.
Simultaneously, the lender will order an appraisal to determine the fair market value of the property. A home appraisal is a professional estimate of the value of a property from a third-party appraiser, to ensure the bank is lending the proper amount of money. Appraisals are required for any home purchase, sale or refinance. The appraiser will compile information about the floor plan, amenities and features, and square footage, combined with local housing trends, similar home sales, and the neighborhood, to determine the home’s actual value. If the appraisal comes back with a value equal to or higher than the sale price, the sale continues, but if it is less, the buyer has the chance to negotiate. If the seller is not willing to negotiate, your mortgage lender may not approve the mortgage for a higher amount than what the home is worth. If that’s the case, you can either choose to walk away or simply pay the difference with cash.
Title Search and Insurance
A title search is conducted to confirm the legal ownership of the property and to identify any outstanding liens or claims that may affect the purchase. A title company or an attorney will thoroughly examine public records to ensure that the title is clear and can be transferred to you without any complications. Additionally, you may be required to purchase title insurance, which protects you and the lender against any potential future claims or disputes over the property’s ownership.
Set Up Utilities
As you move closer to closing day, it’s important to make arrangements to set up utilities under your name. This typically includes essential services such as electricity, water, gas, and in some cases, internet and cable. Contact the utility companies servicing the property to initiate the transfer or new service request. Provide them with the necessary information, such as your name, contact details, and the closing date. It’s advisable to schedule the transfer of utilities a few days before your planned move-in date to ensure a smooth transition. The utility companies may require specific documentation or identification, so be prepared to provide any necessary paperwork. By promptly setting up utilities under your name, you can ensure a seamless transition into your new home and avoid any interruptions in service.
Finalizing the Closing Documents
As the closing day approaches, you will work closely with your real estate agent, lender, and attorney to prepare all the necessary paperwork. This includes the purchase agreement, loan documents, title transfer documents, and any other legal forms specific to your location. It is crucial to review these documents carefully and seek legal advice if needed to ensure you understand the terms and conditions.
Just before closing, it is customary to conduct a final walk-through of the property with your agent. This gives you the opportunity to ensure that the property is in the same condition as when you made the offer and that any negotiated repairs have been completed satisfactorily. This step is in place to avoid an extreme situation where a seller has accidentally left a faucet on and flooded the basement or something of that sort. In that case, you would be responsible for repairs once the paperwork is signed. But if any issues arise during the final walk-through, you can address them before the closing.
Finally, the highly anticipated closing day arrives. On this day, you will meet with the seller, their representative, your real estate agent, and possibly an attorney or closing agent to complete the transaction. You will review and sign all the necessary documents, including the mortgage note, deed, and various closing disclosures. You will also provide the required funds for the down payment, closing costs, and prepaid expenses. Once all the documents are signed, funds are transferred, and the keys are handed over, you officially become the proud owner of your new home!
You are officially a homeowner! Now all there is left to do is celebrate — and move in, of course. Now comes the fun part: making this home your own!
And if you have yet to start the process, contact us to be connected with one of our agents, who can help you through every step of the journey.
(Visited 184 times, 1 visits today)