7 Steps to closing your home purchase
After weeks or even months of online searching, open houses, and driving neighborhoods did you finally find your dream home? Congratulations are in order, but the work has just begun, because there are least seven steps to completing the home sale and getting your keys:
1. Make an offer
These days, there is stiff competition for nice homes that are priced right, so if you find a home you're interested in, the first step is to write and submit an offer with the help of your real estate agent. A purchase agreement will cover all of the nuts and bolts of the proposed deal, including price, timing, and other concessions. But don't be intimidated by the fact that it's a legally binding document, because you're only committing to move forward with the seller in good faith, and there are still contingency periods where you can get an appraisal, a home inspection, and review the seller's disclosures, etc. If something concerning comes up during that process, you have the right to renegotiate, ask for an amendment to your offer, or possibly withdraw, altogether. So don't be hesitant because if you poll new homeowners, one of their biggest regrets is that they didn't write more offers immediately upon seeing houses they loved.
2. Review seller disclosures
In California and most other states, sellers are obligated to provide material facts about the home, property, and even neighborhood, alerting the buyer as to what exactly they’re getting. These disclosures include seller revelations but also a preliminary title report, copies of city reports, CC &R's and HOA documents, and more. You also might see earthquake hazard reports, geological surveys, and flood zone maps.
In the transfer disclosure statement, the seller is legally mandated to truthfully tell you about all material defects that may affect the property’s value, including noise problems, crime in the neighborhood, leaks, lead paint, repairs or additions made without permits, and much more.
3. The appraisal
One of the most important steps in buying a home is the appraisal, an estimate or professional opinion of value based on a comprehensive inspection of the subject property. In fact, no lender will ever issue a mortgage without an appraisal confirming the correct value, and even cash buyers usually get an appraisal to ensure they’re making a sound investment. Appraisers calculate the actual market value of your home by comparing your home to others on the market that have sold recently, called “comps” or comparables. If the value doesn’t come out at the purchase price – or higher –then it will be time to address this and probably renegotiate with the seller.
4. The home inspection
When you're buying a home, and you're officially in escrow, things move quickly, but everything stops for the home inspection, an official report by a licensed home inspector. Your inspector will thoroughly inspect the property and issue a detailed report based on his or her findings, ensuring that you have the best possible information about the condition of the home you’re buying – or what’s wrong with it. There are some problems with just about every home, and this inspection will give you the opportunity to formally request that the seller fixes these issues, or adjusts the price accordingly.
Home inspections play a critical role in the buying process. In fact, a report by the American Society of Home Inspectors reveals that 72 percent of homeowners said a home inspection helped them avoid potential problems when they bought their home, and 64 percent of homeowners said they saved a lot of money as a result of their home inspection.
5. Loan approval
As the real estate side of the transaction progresses, you’ll also have a parallel loan application process. In fact, the lender will have their underwriters carefully scrutinize your credit report, tax returns, bank statements, debt, employment, and all other relevant financial information to make sure their issuance of a mortgage is a smart decision. The bank will also look at the relevant property reports and title documents to make sure the transaction fits their qualifications, as well as a preliminary title report to make sure there are no unexpected liens recorded against the property. The loan process starts with a loan officer or mortgage broker getting you prequalified or preapproved before you even start looking at houses, ensuring that you’re fully ready to close on the house that you truly want and love.
6. The final walk-through
As the transaction winds to a close, you may be ready to sign all of your loan documents, closing documents, and finally, complete the sale. But how do you know the property is still in the same condition as it was when you first made an offer? Right before the closing, you'll walk through the property to confirm that everything still looks good and intact and that any promised repairs were made. For instance, if the light fixtures were removed, the walls severely damaged when they moved furniture out, or the water heater broke and flooded the property after they vacated, you'll want to know, pushing pause on the closing until they rectify the situation. The final walk-through offers peace of mind for the buyer that all is well and the transaction can proceed to close.
In California, closings take place with the help of an escrow officer at a title company. This neutral third part acts on behalf of all parties to ensure everything goes correctly, and that the deal closes properly only when all parties have performed as expected. This is an essential role, as they coordinate all of the documents, paperwork, title reports, lender documents, closing statements, and signings by buyer and seller. Only once all the legal requirements are satisfied per all parties of the transaction – including consumers but also the lender – funds can be disbursed, and the property sale can officially go on record when the transfer of legal ownership (title) takes place.
At that point, the real estate agent can facilitate the exchange of keys and the house officially belongs to the new owner – you! Congratulations, you’ve made it through the seven steps of buying a home!
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