The 30 days or so before closing on your home could be one heck of a wild ride. The key is to have everything you can under control. If you don’t, you may find life can get a bit insane quickly. Until you’re jingling the keys in your hand and a massive smile is on your face, just remember — “it’s not over until it’s over.”
The best way to keep your sanity and the apprehensions positive is to follow some chaos-saving tips that Home Buyers Guidance has prepared for you before you close on your new home.
Escrow is the money involved in the transaction, typically the loan funds and down payment. This escrow money, controlled by a certified escrow agent, deposits it into a separate account for holding. (This can also be referred to as “earnest money.”) While this money is in escrow, no one may access it until the sale is complete. At a successful closing, the escrow money gets applied toward the purchase price or your down payment.
The legal parts of buying a home and there are many. Below we list some you will see during a home closing process. As a buyer, some to be familiar with are:
- Title Search and Title Insurance. These are peace of mind and legal protection for you. They ensure, in the future, no one can claim what you have bought as theirs.
- Home and Pest Inspections. Both are part of due diligence but separate inspections completed by qualified professionals. If you find a severe problem during either inspection, you can back out of the deal or ask the seller to fix it. You can also ask the seller to pay you to have it fixed (as long as your purchase offer includes a Home Inspection Contingency.) Other options include asking the owner to lower the purchase price or offer a home warranty.
- Land Survey. That shed included in the deal may not be on your property. If an inspector finds a discrepancy, ask the owners to rectify these at their expense.
- Appraisal. More details are below, but this is to make sure you are getting what you’re paying for.
An appraisal is an unbiased professional opinion of a home’s value. When the appraisal value is lower than expected, the mortgage lender can delay the transaction or cancel. It’s not uncommon to ask the owner to lower the asking price.
The details make all the difference. Read every word, percentage, and rate. Ask questions and be sure you understand the entire document. You’re committing to this for 30 years or whatever the repayment terms are, so know them all. It’s always good to shop around for rates and proposals.
Insurance Types and Requirements
Augh. Insurance! We usually have to have it but don’t have to like it. Finding the best coverage and rates possible can save you lots of money for the life of the mortgage. Here are the common types of insurance you should understand and may see referenced when getting ready to close:
- Homeowners. Most first-time buyers have their home insurance in escrow. You pay a specific amount (typically, a few hundred dollars) above your regular mortgage payment each month. Your lender/mortgage service keeps these extra funds in an escrow account. When your home insurance is due, the lender pays these fees on your behalf from the escrow account.
- Private Mortgage Insurance (PMI). Private mortgage insurance is a common requirement from your mortgage lender in addition to homeowners’ insurance. It is commonly required if you pay less than 20 percent for the down payment on your home.
- Title Insurance. (As covered above)
- Earthquake. If you live in an earthquake-prone area, then no explanation why you need it is required. If you don’t live in a prone area, be thankful.
5. Flood. Same as earthquake if it’s needed it; get it.
All in one package of details you get from your lender.
Your lender must, by law, give you a 5-page standardized Closing Disclosure at least three days before closing. This document is what is known as the Closing Disclosure 3-day rule. (Unless you are closing on a reverse mortgage, then you will get a HUD-1 form). The Closing Disclosure Package covers everything about your mortgage. Review this legal sample disclosure for details. No, really, review this link. It has the answers to the test.
To ensure you are fully ready for the complete home buying journey, see more free information from Home Buyers Guidance.