Home Buying 101: The Close
In the first and second post of the series, we explored how first time home buyers can start on the path towards the most important purchase of their life. Here we’ll explore what you need to know as you approach the closing.
Once house hunters find their dream homes, it’s not over. In hot markets, for example, properties may attract multiple offers and buyers can find themselves shut out in bidding wars.
Sellers may also be reluctant to accept offers that come with conditions — contingencies — that most buyers want to include in their contracts. These involve things like the house being appraising at or more than the sale price, which buyers need to finalize mortgages; passing inspection; and a final walk through. Sometimes, buyers who are existing home owners want the sale to be contingent on the sale of their own homes. All these conditions are subject to negotiation and sellers in hot markets may have the power to turn them down. At that point, buyers have to consider whether to buy or not considering the added risk.
In addition, all states require some form of property disclosure statement that sellers have to provide before closing. What has to be on that varies but can include: damage from pest infestations; the presence of hazardous materials; condition of mechanical systems like plumbing and heating; and flood risk. The list can be long, and some items, such as severe structural damage, can be deal breakers.
Once these hurdles are cleared, the date for the final sale, when buyers get the house keys in their hands, can be set.
A day or two before this closing, lenders have to provide borrowers with a settlement statement, mandated by the Department of Housing and Urban Development (HUD), which contains a good faith estimate of borrowing costs. These costs include title insurance, appraisal fees, origination fees, and escrow charges. The statement also details broker commissions, recording fees, and, oh yes, the amount due to the seller. Buyers should go over this paperwork carefully. A good real estate attorney can help.
Sometimes buyers can negotiate with sellers to share some or all of the closing costs. Anna Bischoff, an attorney in St. Louis, thought that she had some leverage with her sellers because the house had stayed on the market for a while. She had made an offer on it last January, but the sellers refused to even make a counter offer. By March, however, she noticed they had lowered the price, so she made a new offer and asked them to pay the closing costs, which they agreed to do.
Once all this is squared away, buyers are ready to proceed to closing. This is a fairly routine process that involves lots of signings, of contracts, releases, and checks. The last paper is signed, the keys are turned over, and everyone shakes hands. The buyers hurry to their new address, cross the threshold, and look around. They’re pleased, excited, and a little scared. What if the roof leaks or the beautiful old oak next to the garage is ready to topple over?
Nobody said homeownership was stress-free. Most homeowners would not give it up. They have control over their living space and a sense of belonging that renters may lack. And most don’t experience “Money-Pit” types of problems.
For Bischoff, there have been no bad surprises, only some good ones. The sellers unexpectedly left a lot of good stuff behind: appliances, tools, a lawn mower. And she’s very glad at how happy her dog has been. He enjoys having a backyard and plenty of indoor space to roam.
“It’s Mojo’s house; I just pay for it,” said Bischoff.