7 steps to handle closing on your house like a pro

Congratulations, your offer on a home has been accepted! So...now what?

For many first-time buyers, the process of buying a home becomes much less clear after all the contracts have been signed. If you need to know what happens between then and the closing table, you’re in luck. We’ve developed the ultimate closing checklist for buyers. Read over these steps to learn how to navigate the home buying process like a pro.

1. Put that hard-earned dough in escrow

Once your offer has been accepted, one of the first things you’ll do is put down an earnest money deposit in escrow. This money amounts to a small percentage of the purchase price, usually between 1%-3%, and is used to assure the seller that you’re serious about purchasing the home. Essentially, it’s your stake in the game.

Your deposit, which can either be paid in one or two lump sums during the first few days you’re under contract, is held in escrow by a neutral third party. Typically, this will either be the broker or the title company. If the home goes to closing without issue, your deposit money is applied to your down payment. However, if you violate the terms of the purchase agreement while trying to back out of the deal, it could be given to the seller in reparation.

2. Apply for a mortgage

Though you probably applied for a pre-approval before submitting your offer, applying for a mortgage is a separate process. Here, you’ll sit down with your lender, and he or she will go over specific loan programs with you in order to find one that best suits your needs. Once you land on the right loan, you’ll be asked to submit an application along with some supporting documentation such as pay stubs, bank statements, and specific information about the property.

Shortly after you apply for a loan, you’ll receive an estimate of closing costs and a conditional commitment letter. The letter states that as long as certain conditions are met, you’ll be granted the mortgage. From there, you’ll enter into underwriting, where the lender vets your financials to assess the risk of granting you a loan.

While you’re in underwriting, financial stability is key. It’s unwise to change jobs, apply for new credit cards, or make any large purchases during this time. Doing so could be a red flag for the underwriter, and it may jeopardize your chances of getting the loan.

3. Satisfy your contingencies

At the same time, you’ll be working on satisfying any contingencies that are in your purchase agreement. A contingency can be anything that needs to happen in order for the transaction to continue moving forward.

However, they tend to fall under the following categories:

  • Inspection contingencies: The most common contingencies are for inspections done on the property. They include the general property inspection, as well as more specific options such as inspections for structural damage or wood-destroying insects. In order to satisfy this contingency, the buyer must hire someone to complete the inspection. Then, the buyer and seller must agree on a satisfactory course of action for repairs.
  • Appraisal contingency: If you’re getting a mortgage, the bank will likely require you to get an appraisal to determine the fair market value of your home. Satisfactory appraisals have a home value that is at or below the proposed sale price.
  • Financing contingency: Anyone getting a mortgage should elect a financing contingency. This contingency states that, if you’re unable to get a loan, you have the right to leave the deal with your escrow deposit in hand.
  • Home sale contingency: Though this contingency isn’t used as much anymore, it allows you a specified amount of time to find a buyer for your current home. If you can’t find a buyer in that time, you’re allowed to dissolve the deal.

4. Clear the title

In real estate, “title” refers to legal ownership of the property. One of the conditions of your loan will likely be that you have a title search done in order to ensure that there are no claims to ownership other than the seller and that the seller has cleared any outstanding liens or judgements that may be attached to the property.

Most of the work of clearing title will fall to the seller and listing agent. However, as the buyer, you’re responsible for choosing the title company and buying a title insurance policy in order to ensure that you’ll own the home outright. In some states, rather than working with a title company, you’ll contract with a lawyer for this step.

5. Receive final mortgage approval

After your loan has gone through underwriting and you’ve cleared all the conditions on your initial commitment, you’ll receive a firm commitment, which is your guarantee that you’ll be granted a loan. You’ll also receive a closing disclosure, or HUD-1 statement, which outlines your closing costs and the specific terms of your loan.

You’ll want to review this sheet carefully and compare it to the initial paperwork you received shortly after applying. If you spot any discrepancies between the two, be sure to ask your lender to go over them with you.

6. Do a final walkthrough

The day before closing, you’ll be given a chance to do a final walkthrough of the property. This is your opportunity to make sure that the home is in acceptable condition before you take over ownership. You’ll want to make sure that all the systems are in working order, that any repairs agreed upon during the inspection period have been made, and that the seller has moved out. If you spot any problems, this is your last chance to have them rectified.

7. Go to closing

Actually closing on your home is the last step in buying it. This is where you’ll sign all the paperwork, pay closing costs, and be handed the keys to your new property. Make sure you check in with the title company beforehand to be given a list of any necessary documentation that you need to bring with you in order to close.

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