Attorney review, inspections and credits
An offer is accepted by the seller. A contract is signed and the buyer gives a deposit. The contract is delivered to buyer’s and seller’s attorneys for review and approval. During this brief attorney review period, changes can be made to the contract if both parties agree. Also, the contract can be terminated during this period if an attorney disapproves it.
The buyer hires a home inspector to perform a structural inspection on the property. Other simultaneous inspections include those for termites, radon, lead paint and asbestos. All inspections must be completed by the inspection contingency date named in the contract. If any “substantial defects” (as defined in the contract) are identified in the inspection, buyer can seek to modify the price, ask for credits at closing, or cancel the contract.
The mortgage process
The purchase mortgage begins when the buyer-borrower submits a loan application to the lender. The buyer submits numerous personal financial disclosures to the lender in furtherance of credit approval. These include bank statements, documentation of rent payments, tax returns, paystubs and any other disclosures that are material to a borrower’s financial situation (among other things, this includes marriage licenses, divorce settlements, child support, liens, bankruptcies, judgments and an explanation of any credit inquires). The buyer may be asked more than once for the same type of document. Any material changes in buyer’s personal financial situation may require the lender to reassess the buyer’s eligibility for the loan.
Within three business days of the application, the lender provides borrower a loan estimate, which includes a breakdown of estimated closing costs. (The actual final closing costs will deviate from this estimate.)
If the lender approves the buyer after the underwriting process, it issues a loan commitment letter stating its willingness to fund the mortgage if certain conditions are met. These conditions include an appraisal of the premises. The appraisal is usually paid at this time. If the appraised value is lower than the purchase price, a lender can decline to approve the borrower unless the purchase price is reduced to the appraised amount.
There is a mortgage loan contingency date in the purchase contract. Once the loan commitment letter is issued by the lender, the contract’s mortgage contingency may be waived. If the loan commitment letter (or denial letter) is not timely provided by the lender, buyer can ask seller for an extension of the loan contingency date. The seller can decline to extend the date, but if a timely request is denied, the buyer can opt to cancel the contract.
During this time the buyer obtains a policy of homeowners’ insurance. Proof of homeowners’ insurance is submitted to the lender.
A title search is conducted to determine if there are any liens, assessments, or encumbrances affecting title. At this time the title agency will review the record of title, property surveys, a copy of the proposed deed into buyer, and other documents. In this way the title agent creates a title report and commitment for title insurance. This document is reviewed by the attorneys for the buyer, seller and lender. The lender requires borrower to get a policy of title insurance that insures the lender against any loss or damage due to liens, encumbrances or title defects. A lender’s title insurance policy (also known as mortgage policy) will only insure the lender’s interest. Optionally, the buyer can purchase a “fee” or owner title insurance policy to protect its interest. It is a one-time charge (unlike homeowner’s or car insurance policies, for which premiums are paid annually). The buyer’s attorney typically places the title insurance order.
The buyer should not make any employment or credit changes (e.g., financing a car, opening a new credit card account) until the home transaction is complete, to avoid jeopardizing credit approval.
Provided title is “clean” or “clear”, and the lender has determined the buyer/borrower has satisfied all conditions of its loan Commitment Letter, lender will issue the “clear to close.” At this time the respective attorneys will schedule a closing date.
Once a specific closing date is determined, each party’s attorneys prepare a “statement of sale”, a ledger showing buyer’s and seller’s debits and credits. This document includes all closing costs between the parties (including pro-rated taxes and utilities). Buyer’s lender will prepare a Closing Disclosure statement, which shows how much money Buyer must bring to the closing table. These funds must be in the form of an official bank check made payable directly to a party. The buyer must confirm the check payee and amount with the attorney before having the check issued.
A final walk-through will often be performed the day of or right before closing to verify the property is in the same condition it was when the process began, reasonable wear excepted. The home should be clean and free of personal effects, unless the parties have agreed otherwise.
The closing takes place at the office of an attorney, where buyers sign all documents related to their loan and the transaction itself. After all documents are signed and payments exchanged, the buyer pays the balance of the purchase price (balance after credits, deposits, and any down payments). Buyers generally take possession of the property unless a separate agreement has been reached to allow the seller stay in the property for a period after closing.
The title agency delivers the deed to the county clerk for recording. The deed is given a unique registration number that is referenced in the buyer’s final policy of title insurance.