There are preparation steps before buying a home. There are the showings and the offers. It’s easy to think once you have an accepted offer, you’re most of the way through the buying process. You’re really just getting started. Here are the steps you will take once you have a home under contract.
1. Fill out a loan application and submit paperwork.
A loan application will include your personal information, previous employment history, current employment, income, current housing, net worth, and much more. It also gives your lender the go-ahead to run your credit. It must be completed within 5 days of contract signing. At this point, the lender will request supporting documentation from you, which will include the items mentioned in #1 and probably some additional ones.
2. Submit escrow.
Part of your contract will include earnest money, which shows the seller you’re serious about buying the home. It’s usually about 1% of the purchase price and it is due within 3 days, although the amount is up to you when your agent writes the contract. You will get this money back if you choose not to move forward during the inspection period. If you choose to cancel the contract after the inspection period, you may not receive your escrow back. If you don’t submit escrow at all, the contract is void.
3. Speak with an insurance agent (or two, or three).
As soon as you’re under contract, I suggest speaking with an insurance agent. Most properties can be easy to quote, and others take a little longer. You want to make sure you get the best coverage for the best possible price, so get ahead by shopping early. You will need to refine as you gain more information, however, you should get the process started.
4. Sign disclosures.
Your lender will send you disclosures periodically. Check to make sure their numbers are correct (income, assets, purchase price, interest rate, etc.) and sign.
Once you are under contract to purchase a property, you will have time to inspect the property. The inspection period varies and is usually 7-15 days. You should certainly have a professional inspector inspect the home and give you a report early on in the inspection period. Depending on the inspection report, property type, and location, you may prefer to have additional inspections as well. We had a termite inspection and a structural inspection done recently. Inspections cost money, however, it is worth every penny to know what you’re buying.
6. Get quotes and renegotiate (optional).
Sometimes, inspections come back clean. Other times, they unearth some serious problems. Mostly, they’re somewhere in between. Use the inspection period to bring professionals out to give you estimates for repairs. Insurance providers looks at four main parts of the home: roof, HVAC, plumbing, and electrical. These items are broken out in a 4-point report, which your inspector gives to you, and you in turn provide to your insurance agent. These areas of the home greatly influence insurability and insurance premiums, so most sellers will agree to either fix these items or will agree to a lower selling price for the amount the repairs will cost the buyer. We recently renegotiated decreasing the purchase price by the cost of a new roof. Alternatively, the seller of my first house let me pick out the shingle color and paid for and redid the roof two weeks before we closed.
7. Order the appraisal.
Once you make it through the inspection period, you should immediately order the appraisal. An appraiser will compare the home you’re buying to other recent sales in the area to ensure it is worth what you’ve offered to pay for it. The reason the appraisal is important is that your lender will finance either the appraisal price less your down payment or the purchase price less your down payment, whichever is lower. This protects the lender in the case of default because in that case they’d ultimately own the home.
8. Submit additional information to your lender.
My experience tells me that lenders will need more information during the time you’re under contract. They may ask for additional account statements. They may ask if you’re selling your current home. They may ask your boss when your next raise is. They may ask why you transferred $10,000 from your checking to your savings last month. They may ask why you’re moving into a multi-family property from a single family one. They may ask why you opened a credit card 60 days ago. Just know that whatever they asked for up front probably won’t be all the information they need.
(These are all actual examples that have happened to me. And for some reason, telling them you opened a credit card to buy things with is not a detailed enough answer. Learn from me.)
9. Finalize insurance.
Approximately a week prior to closing, your lender will need to speak with your insurance agent. The agent will tell the lender how much money you’ll need to pay towards your insurance premium every month (also called escrow), and your agent will bind your policy and get a policy number. The lender needs to know that the property is insured the day you close. Again, if you default, they will own the home so they want to know it’s protected.
Note that if you do this prior to receiving the appraisal and the appraisal comes back lower than the purchase price, you will be able to “unbind” the policy. Unfortunately, I also know this from experience.
10. Receive the appraisal.
Review the appraisal report. If the house does not appraise for the purchase price, there is a problem. For example, let’s say you have an accepted offer for $360,000 and the house appraises for $357,000 (actual example from a friend of mine). If this happens, you will need to renegotiate the price with the buyer, contest the appraisal, come up with the difference, or a combination. We recently had a house appraise for lower than the contract price and chose to provide a comparable listing the appraiser missed along with contesting the appraisal. If the house appraises, you’re good to close.
11. Sign the final closing disclosures.
A few days before closing, your lender is required to send you the closing disclosures, which include the purchase price, loan amount, interest rate, payment amount, closing costs, amount owed by the buyer, amount owed to the seller, and more. The numbers will be very close to the final ones you’ll sign when you close. Check the information and sign.
12. Change utilities to your name.
If you want to have utilities when you close, you need to get them put into your name prior to closing. The buyer will have those shut off that day.
13. Schedule movers.
If you have to put a deposit down to schedule movers, it’s safe to wait until after the appraisal and final disclosures come through. It’s safest to wait until you actually close. The same goes for repairs (below).
14. Schedule repairs.
You may have received some quotes for repairs during the inspection period that you need to act on. Recently we were set to close, and we lined up a tree trimmer and a contractor to get to work the business day after we closed.
As you can see, the process of buying a home does not end at the accepted offer – there’s still a ways to go! Just take the process day by day. You, like millions before you, will get through it and you’ll be so glad you did.