Congratulations! Your home search efforts have finally paid off and you have an executed contract to purchase a home! Now what do you need to do? For starters, hopefully you are being represented by a knowledgeable real estate agent. He or she will certainly be able to guide you along the way, giving you recommendations and strategic approaches to the transaction. According to Ellie Mae, a cloud-based platform for loan origination, the average closing time on a real estate transaction is 43 days, as of February 2020. We will discuss the various steps that you can expect from the time you have an executed contract through closing day.
Initial deposit & inspection period
Once you have an executed contract, you will typically need to place an initial deposit into escrow. It is likely that the closing agent will be holding escrow, but your real estate agent should be able to provide guidance on this. In addition, you will most likely have between 7 to 15 days to conduct your home inspection. As a buyer, you can think of an inspection period as the period of time that you have to fully analyze the property and all aspects of your home purchase. During this period of time, the buyer is in full control of the transaction & is the only party that may cancel the contract. For example, it is quite possible that some serious material defects may be discovered during the home inspection. If this is the case, the buyer may propose that the seller either repair the items or offer a concession on the sales price to cover the cost of these repairs. In the event that the buyer does not feel that the seller is cooperating with these requests, the buyer may still cancel the contract. In order to cancel a contract, the buyer’s agent would need to draft a “Release and Cancellation of Contract for Sale and Purchase” and it would be executed by all parties. This form would release both the buyer and seller (as well as the brokerages involved) from liability, and instruct any escrow agent as to disbursement of a deposit(s). It is important to note that the “Release and Cancellation of Contract for Sale and Purchase” form would need to be executed prior to the expiration of the inspection period. However, assuming the contract is not cancelled, below are the typical next steps involved.
Ordering title search and insurance
During this phase of the process, you will more than likely utilize a real estate attorney or title company to order a title search and insurance. A title search ensures that there are no issues with transferring the ownership rights to the property. Title insurance is there to protect you from being held responsible if any issues such as unpaid property taxes, are discovered in the future. This is a critical step in the home buying process.
Ordering an appraisal
An appraisal determines the fair market value of the property and is there to ensure that neither you nor your lender is overpaying for the property. If you are obtaining a mortgage to purchase the home, then your lender will order the appraisal. The lender will then require a satisfactory appraisal as a condition of your loan. As long as the appraiser assigns a value to the property that is at or above the purchase price in the contract, then the contract should move forward. In the event that the appraisal amount comes back lower that the purchase price, then the buyer will most likely need to renegotiate the price with the seller to match the appraised value. The other option would be that the buyer would need to pay the difference due to the lower appraisal amount for the mortgage.
If you are a cash buyer, then the appraisal is not a required step in the home buying process. Of course, a cash buyer may add an appraisal contingency addendum to the contract during the initial contract presentation period. In this case, the buyer would need to order and pay for a property appraiser to conduct the appraisal.
Obtaining loan approval
Throughout this process, your loan application will go through various steps including an underwriter review. During this phase, your finances are fully vetted to ensure that you should be approved for the loan. Most likely, the lender will first issue a conditional loan approval, meaning you will have to meet certain conditions in order to be approved for the loan. You’ll want to do your best to resolve these conditions as quickly as possible to ensure there are no issues with closing on your loan.
Final walk through
This is truly exciting as you are now either one or two days from the closing day. Or, this may actually be the morning of your closing day. You will meet your real estate agent at the property to do one final walk through to ensure that the property is in an acceptable condition. In addition, this is a good time to confirm that any previously agreed upon items with the seller are met. For example, perhaps some furnishings were negotiated to be left at the property. Once this final walk through has taken place and is satisfactory, you are now officially heading to the closing table.
Closing day
Prior to this day, your real estate attorney and/or title agent should have sent you the closing disclosure statement for your review. In addition, he/she would also inform you of the total amount that you will need to bring to the closing table via certified funds. On closing day, you’ll sign your final documents and either wire the funds or bring a cashier’s check in the amount listed on your closing disclosure statement. After closing, the escrow agent will distribute the funds to the appropriate parties. You now are given the keys to the property and are officially a homeowner!!!
Summary
As you can see, there are many steps throughout the home buying process. With this said, it is important that a buyer remain extremely organized and punctual to adhere to the various deadlines. To ensure that the entire process goes smoothly, you will want to have a great team including:
- a knowledgeable & responsive real estate agent
- a knowledgeable & responsive mortgage broker (if obtaining a mortgage)
- a real estate attorney/closing agent
- a prompt & thorough home inspector
Overall, the home buying process typically takes approximately 5 – 6 weeks. Of course, this process can be faster if you are a cash buyer. Naturally, it can be nerve-wracking for many people as it is likely the biggest investment of their lives. As with anything, the more prepared you are the better the process will be.
Congratulations! Owning a home is truly The American Dream & also a critical step towards wealth accumulation.
