A real estate “Closing” is where you and I meet with some or all of the following individuals: the Seller, the Seller’s agent, a representative from the lending institution and a representative from the title company, in order to transfer the property title to you. The purchase agreement or contract you signed describes the property, states the purchase price and terms, sets forth the method of payment, and usually names the date and place where the closing or actual transfer of the property title and keys will occur.
If financing the property, your lender will require you to sign a document, usually a promissory note, as evidence that you are personally responsible for repaying the loan. You will also sign a mortgage or deed of trust on the property as security to the lender for the loan. The mortgage or deed of trust gives the lender the right to sell the property if you fail to make the payments. Before you exchange these papers, the property may be surveyed, appraised, or inspected, and the ownership of title will be checked in county and court records.
About a week in advance, I will schedule the real estate Closing with you and the title company. We will meet at the title company on the day of closing, sit in a conference room with an escrow officer (who is also a notary), and you will sign the legal documents to purchase the home.
You will need to bring your driver’s license with you to the real estate Closing. At closing, you will be required to pay all fees and closing costs in the form of “guaranteed funds” such as a cashier’s check. Your agent or escrow officer will notify you of the exact amount at the day before Closing.
Buyers: What To Bring to Your Closing Appointment
Here’s the minimum of what to bring to your “Closing”:
- Photo ID
- “Good funds” for your down payment and other costs: typically
a cashier’s check—never cash
When you purchase a resale home, you can purchase a home warranty (a.k.a., Residential Service Contract or RSV) that will protect you against most ordinary flaws and breakdowns for at least the first year of occupancy. The warranty may be offered by either the Seller, as part of the overall package, or by the agent. Even with a warranty, you should have the home carefully inspected before you purchase it.
A home warranty program will give you peace of mind, knowing that the major covered components in your home will be repaired if necessary. Here are the major RSV providers:
If you need help deciding, check out http://www.homewarrantyreviews.com/reviews but keep in mind that the bigger companies have more complaints because they have millions of customers and people are more likely to complain than express their satisfaction. “You can’t please all the people all of the time…”
I can say from personal experience that I no longer recommend First American Home Buyers Protection…they have terrible customer service these days and send terrible, low-quality vendors to perform the work.
Items Needed To Apply for a Home Loan
Applying for a home loan these days is not for the “weak at heart”! It is a pain-in-the-neck process no matter how much money you have.
NOTE: Read The Perfect Loan File on Forbes for details.
There is a lot of paperwork required in order to obtain a home loan. Plus, you will have to provide much of the paperwork multiple times throughout the loan process because of new lending standards. Lenders are now required to verify certain items several times through the process…so don’t get offended or frustrated when they ask you for something that you have already provided them.
Here’s what you will probably need:
- Proof of identity for borrowers including driver’s license and Social Security number.
- Address history for three years.
- Copy of tax returns for past 2 years.
- Banks names and numbers for all checking and savings accounts.
- Bank statements for the past 3 months.
- Documentation of all income including pay stubs for past 2 months.
- Proof of bonuses for 2 years if applicable.
- W-2 forms showing income for past 2 years.
- Job history for past 2 years.
- Net worth sheet with list of all assets and liabilities including account numbers.
- Most recent 401K statements and other retirement accounts.
- Copy of gift letter if applicable.
- If self-employed, copy of balance sheet.
- Divorce decrees if divorced in the past 2 years.
- Proof of residency, if applicable.
- College transcript if you were a student in the past 2 years.
- Bankruptcy discharge papers, if applicable.
Home Buyers: What Not To Do
Maybe you’ve just gotten married. Maybe you got a raise … or maybe you’re just plain sick of renting. Whatever the case, you’ve decided that it’s time to buy a house. You’ll be given all kinds of advice and pointers about what you should do and how you should do it, but there are things you shouldn’t do that are equally important.
Don’t be deceptive or dishonest when you’re filling out your loan application. Even if you get away with fudging the numbers a little to secure a higher loan (which is loan fraud), what’s the payoff you’re looking for? A monthly payment that you can’t truly afford?
Avoid moving your money around. To eliminate potential fraud and provide a degree of quality control, a lender will review the source of funds for your down payment and closing costs. Most likely, you will be asked to provide recent statements for any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stocks, mutual funds, and even your 401K and retirement accounts. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them, which could make it more difficult for the lender to document properly.
Once you’ve been approved for a certain amount, resist the temptation to make any big purchases that could affect your ability to service the loan. Examples might be a new car, a boat, or expensive furnishings.
Sure you may be able to afford the mortgage and a car payment, but what if an unexpected expense comes along that causes your monthly budget to become unbalanced—you’ve got a shiny new car, but you may have trouble affording that and gasoline, and the mortgage, and the utilities. You’re caught in a situation where you’ve over-extended yourself. Even if you’re able to make it work on a month-to-month basis, you may have trouble putting money to your savings account.
Sometimes, knowing what not to do is just as important as knowing what to do. Your Texas REALTOR® can help guide you through the home buying process.
Please know that a home inspection is one of the most important parts of buying a home. But it can be overwhelming trying to find a reputable inspector who you can trust. I provide all my buyer clients with a list of licensed home inspectors in the area to make this process easier for you.
The inspection should include information (including photos) on the condition of the following:
- Air conditioning and heating
- Roof and Attic
- General Structure
The inspection is designed to report on any potential defects or problems with the home that may require repair. Not everything they report will be considered an actual defect by you; you must decide on whether or not the items noted require repair or not for your peace of mind. For example, I have never seen a home inspection report where the inspector did not note that the dirt is too high around the foundation of the home. This seems to be something that they always note because it could potentially hide termite activity around the home…and inspectors have to protect themselves against potential lawsuits. But this is something that you can easily fix when you move into the home.
- Should serious foundation or structural problems be indicated, the inspector will recommend that a structural engineer or other professional inspect it as well.
- The home cannot “pass or fail” an inspection, and your inspector will not tell you whether he/she thinks the home is worth the money you are offering.
The Seller may be willing to negotiate completion of repairs or a credit for completion of repairs, or you may decide that the home will take too much work and money. A professional inspection will help you make a clear-headed decision. In addition to the overall inspection, you may wish to have separate tests conducted for termites or the presence of mold.
In choosing a home inspector, consider one that has been certified as a qualified and experienced member by a trade association.
I recommend being present at the inspection. This is to your advantage because you will be able to clearly understand the inspection report and know exactly which areas need attention. Plus, you can get answers to many questions, tips for maintenance, and a lot of general information that will help you once you move into your new home. Most important, you will see the home through the eyes of an objective third-party. But always keep in mind that an inspector’s job is to report on all potential issues (like dirt around the foundation) and you need to be reasonable in your repair request negotiations with sellers.
We handle inspections in a very unique way in Texas. When you write a contract to purchase a home in in Texas, you can buy an “option period” (usually 7-10 days, negotiable) from the seller for $200-$500 (negotiable) that gives you the irrevocable privilege to back out of the sales contract for any reason, and still receive your 1 percent earnest money back. (During this time, the Seller cannot back out of the contract…only the Buyer has that right.)
NOTE: The $200-500 Option fee is paid directly to the seller…usually via a personal check. So when you sign the contract to purchase a home, you will give your real estate agent two checks: 1) Option fee check payable to the Seller, and 2) Earnest money (usually 1 percent of sales price) payable to the Title Company. Your agent will deliver both checks to the appropriate party and get a written receipt for proof, within 3 days of executing the contract. If the Option fee is not paid within 3 days, then the Option period does not exist and you are buying the home as is! Very important!
If you buy an Option period, it begins the day the contract is “executed” (signed and acknowledged by all parties). So you must be ready to get your inspections ordered ASAP. (Here’s a list of home inspectors.) Any and all inspections that you want to have done to the home must happen before the end of the Option period. In addition, if you find any defects that you cannot live with, then you must negotiate the repairs, or change in price, before the end of the Option period. At 5:00 p.m. on the last day of the Option period, if you have not had the Seller sign an Amendment agreeing to price modifications or repairs, then you are buying the home “as is.” Make sure you get your inspection reports several days before the end of the Option so you can review them and discuss with your agent and have time to submit an Amendment to the Seller.
In summary, the Option period gives you time to have the home thoroughly inspected and find any defects that you cannot live with. It also allows time to negotiate repairs with the Seller. At the end of the Option Period (and the timing is very strict) you can do one of the following:
- If you “exercise” your option (and decline purchasing the home), then you lose your option fee ($200-500), but you get your 1% earnest money back.
- If you do not exercise your option (and continue the purchasing process), then the option fee is usually applied toward your closing costs.
Make sure you hire a real estate agent who knows how to properly handle Option Periods and protect your money.