Prepare for Closing

Once your purchase offer has been accepted by the seller and you have chosen a loan and a lender, it’s time to focus on the closing process. This is the final step before you become the homeowner.

TRINITY DEBT MANAGEMENT HOUSING COUNSELING, SECTION IV

Prepare for Closing

B uyers who have received loan pre-approval versus loan pre-qualification are often able to close sooner. The pre-approval process involves verification of certain items upfront before signing the purchase contract, moving the borrower a few steps closer to closing.

Closing Checklist

Gather Your Requirements

Submit your documents

Be proactive and responsive to your lender

A good lender is a thorough lender

If a lender has verified the borrower’s employment, bank accounts and credit report, closing can take place as quickly as underwriters can process the paperwork and review the appraisal, generally within a week or two. However, if a document is missing from the file, such as a preliminary title report or a seller’s condition of sale, the closing may be delayed. Most federally related mortgage loans can close within 30 days. Special first-time home buyer programs, particularly those involving help with the buyer’s down payment, might take 35 to 45 days to close. These special loans typically require approval from two underwriting processes.

It may seem like your lender asks you to provide too many or very personal documents, but to give you a loan, the lender needs to decide that you can pay it back. This process benefits you too because providing full information now helps make sure you can keep your home later.

Expect to work with multiple people associated with your lender

Lenders have specialized staff that work on processing and underwriting (approving) your loan.

If you receive regular income from a non-employment source, be prepared to submit additional documentation

You may have regular income from sources other than employment, such as child support, alimony, or rental income. If you rely on this income, the lender needs proof that this income can reasonably be expected to continue in the future at the same level.

If you have made one or more large deposits into your bank account recently, be prepared to document the source of the money

It’s common for home buyers to have large deposits in their bank records, especially when transferring money between accounts in preparation for a home purchase. Lenders are generally required to verify the source of your income and down payment funds. Requirements vary, so ask your lender what documentation you need.

Some kinds of loans do not allow you to use gift funds for the down payment

If some of your down payment funds are a gift, ask your loan officer now whether the gift funds are allowed with the loan you’ve chosen.

You can’t bring actual cash to closing

Your lender, real estate agent, and even your Loan Estimate form all talk about your “cash to close” or the amount of money you need to bring to closing. The money you bring to closing typically needs to be in the form of a cashier’s check or wire transfer from a bank. Confirm with your closing agent what form of payment you will need.

Schedule a Home Inspection

Once you’ve chosen a home, schedule a home inspection appointment as soon as possible so that you have plenty of time to resolve any potential problems. You need to know as soon as possible if there are any major problems with the home so you can decide whether you still want to buy the home. Also, if additional inspections are needed, you’ll want to have plenty of time to get them completed.

You want an independent home inspector who is accountable to you, and who will give you a complete inspection and an honest opinion. If the home inspector is being paid by someone else, or not paid until closing, then the inspector might underemphasize any problems with the home.
The inspection is meant to evaluate the structural and mechanical condition of the property. The inspector’s findings will be based on observable, unconcealed, structural conditions. An inspection may take up to two hours, and a written report is presented after the inspection is complete.

Inspections should include an evaluation of the following:

The inspection report will not include a recommendation as to whether you should buy the house, nor will it evaluate the purchase price. If major flaws are uncovered, it should give you some idea of what the repair or replacement costs. A reputable home inspector will never offer to perform needed repairs and should not refer you to a contractor to perform such repairs.

An inspection report may serve the following purposes:

Identify problems before you purchase a home
Enable you to get out of a purchase agreement if serious problems are identified
Help you negotiate an adjustment in the purchase price if you want to buy the house despite problems
Get the seller to agree to pay for the needed repairs before or after the sale using escrowed funds
Make you feel confident about going ahead with the purchase

Don’t buy a home without having it thoroughly inspected

Inspections are for your protection. If repairs are needed, you may want to negotiate with the seller about who should make or pay for the repairs. Depending on the terms of your purchase contract and local market conditions, the seller may or may not agree to pay for the repairs. If your purchase contract is contingent on a satisfactory inspection, you have the right to cancel the sale without penalty if you are not satisfied with the results of the inspection.

An appraisal is a written document that shows an opinion of how much a property is worth. The appraisal gives you useful information about the property. It describes what makes it valuable and may show how it compares to other properties in the neighborhood. An appraisal is an independent assessment of the value of the property.
When you borrow money to buy or refinance a home, your lender may need to get a new appraisal, and may require you to pay for it. Your lender may also use other ways to check the value of the home. For a typical home loan (that is, a loan secured by a first mortgage on your residential real estate), you are entitled to receive a copy of appraisals and opinions of value your lender gets. You should receive them soon after they are delivered to the lender in complete form, no later than three days before closing.

Homeowner's Insurance

Homeowner’s insurance protects you in case of accidental damage to your home. Lenders typically also require you to have homeowner’s insurance as a condition of your loan. You can choose your homeowner’s insurance company.

Shopping for homeowner’s insurance

Ask your advisors if they have a recommendation for a homeowner’s insurance company. You can also look for homeowner’s insurance online.
Contact several companies to get quotes in writing. Compare the cost and coverage amounts. See how your premium would change if you increase the deductible.
Consider the reputation of the company. If something happens to your home, you want to be well covered.

Show your loan officer one or more quotes that you are considering. Ask if they meet the lender’s requirements for homeowner’s insurance coverage.

Revised Loan Estimates

As your lender works to verify the information in your loan application, you may receive revised Loan Estimates. These new Loan Estimates indicate that something important has changed about the loan and its costs.

Choose Your Own Inspector

Check your email and postal mail frequently to make sure you don’t miss a revised Loan Estimate or other important communications from your lender.

Compare a revised Loan Estimate to the previous one you received

Can you tell what changed? If not, or if you don’t understand why something changed, ask your loan officer right away. Ask:

Common reasons you may receive a revised Loan Estimate include:

The home was appraised at less than the sales price.

You requested a rate lock after the lender issued the original Loan Estimate.

If the appraisal identifies major repairs that are needed, closing could get more complicated

Your lender must send you a copy of your appraisal promptly once it is completed.

You can always go back to the seller and ask them to pay for some of or all the lender-required repairs, but the seller is not typically required to pay for repairs. If your purchase contract has an inspection contingency, you may be able to cancel the sale.

Last Steps

Closing costs can add up to be thousands of dollars, because closing costs estimates can vary widely among lenders. Some of the closing costs are paid to third-party providers, which you can shop for separately. Lenders or real estate agents might recommend providers they have a relationship with, but those providers might not offer the best deal. You can often save money by shopping around for closing services.

1. Purchase owner’s title insurance

Most lenders require you to buy a lender’s title insurance policy, which protects the amount they lend. You may want to buy an owner’s title insurance policy, which protects your financial investment in the home.

Schedule your closing

When choosing a date, make sure to consider:

Does your purchase contract specify a deadline for closing?
Is there a specific date when you must vacate your current housing?
When does your rate-lock expire?
Will your lender be able to complete their loan approval process in time for the closing?
Is your closing agent busy with other closings at the same time? There may be more people trying to close near the end of the month. Consider scheduling your closing for the beginning or the middle of the month.

2. Review Closing Documents

Closing can be stressful. You may be getting ready to move. There’s a lot going on, and a lot of paperwork to go over and sign. Make things easier on yourself by reviewing the documents in advance.

Find out how you will receive your Closing Disclosure

By law, you must receive a copy of your Closing Disclosure three business days prior to closing.

Contact your lender or closing agent (title company, escrow officer, or attorney) at least a week before closing to find out how you will receive your Closing Disclosure.
The Closing Disclosure may come from your lender or your closing agent. Find out who will send it to you.
Find out if your Closing Disclosure will come via email, postal mail or if you will have to download it from a website.

Request a copy of your other closing documents in advance

In addition to the Closing Disclosure, there are other important documents to review. Ask the lender or closing agent to send these documents to you in advance, at the same time as the Closing Disclosure. Key documents include:

You have three business days to review your Closing Disclosure

Use your three days wisely. Now is the time to review your documents, ask questions, and ensure you understand what you are signing up for.

It's not uncommon for some of the individual closing costs to have changed by small amounts compared to your Loan Estimate

Other fees are limited to a 10 percent increase, and another group of fees are not limited in how much they can change. Learn more about which fees can change.

If any of the basic loan terms are not what you are expecting, ask questions and be wary

Double-check the loan amount, loan type, loan term, interest rate, monthly payment amount, whether there is a prepayment penalty, whether you are paying points or receiving credits, and other key details.
Compare the Annual Percentage Rate (APR) on the Closing Disclosure to the APR listed on your Loan Estimate. This is an easy way to see if your costs have increased.
Ask lots of questions. Do not sign any documents at closing until you have double-checked that the documents you are being asked to sign are correct.

Prepare for Closing