The purchase of a home is one of the most important investments a person can make. Good planning and preparation is necessary. The hardest work is done up front. When issues are resolved at the beginning of the negotiating process, a “smooth closing” is sure to follow. (As lawyers, we much prefer a “friendly closing” as we are sure both Buyer and Seller do). Although no one can guarantee a trouble free closing, the following tips should help.The Contract
Virtually all contracts provide for a three day attorney review period. However, it is highly recommended that the business terms be negotiated at the time of the original signing. Such things as purchase price, closing date, amount of deposit, as well as items included/excluded in the sale should be ironed out from the very beginning. It is also helpful if you have a pre-approval letter from a lender confirming that you are qualified to obtain a mortgage in the amount needed. Although such a letter is not binding, it will give the seller a degree of comfort knowing you have the financial ability to purchase the home.
This is perhaps the most critical stage in the entire process. It is imperative that you engage a qualified home inspector who will perform a thorough inspection and that you be present during the inspection. Prior to the inspection, you should determine if the home is (or was) heated by oil. If so, you will need to engage another inspector to determine the condition of the oil tank. Additionally, you will also need to ascertain whether the home has either a septic system or private water well (in both cases, special testing is performed to determine the quality of these systems). Note that the contract will provide a specific time frame in which these inspections are to be performed. Failure to perform this task in a timely manner will forfeit your right to ask for repairs.
Getting a Mortgage Commitment
In virtually all instances, mortgages will be required. It is critical that you apply immediately after attorney review has concluded. Shop around. Banks compete for your business. Make sure to complete the loan application and to provide all documentation required by the lender. Keep in mind that the contract will most likely provide a mortgage contingency deadline (usually 45 days). In the event you do not obtain a commitment in the time required by the contract, you will need to request an extension. Note also, that in the event you are unable to obtain a commitment, the contract will allow you to terminate the deal.
After you receive the mortgage commitment, it is essential that you confirm that the terms (rate, amount, points) are what you negotiated. Some commitments are “conditional”. That is, the commitment has conditions which must be addressed. Likewise, it is absolutely imperative that you confirm that the lender has performed an appraisal of the home in advance of the commitment. Remember, most lenders lend money on an 80% loan to value ratio. If there is a problem with the appraisal, the bank may not lend the amount you expect. This spells trouble.
Preparing for Closing
Most of the work to prepare for closing is in your attorney’s hands. However, you are not completely “off the hook” yet. You are still required to satisfy all the conditions of the mortgage commitment. All the paperwork and other information needed for closing should be submitted to the bank/lender at least a week (and in some cases, two weeks) before the scheduled closing date.
One of the conditions of your mortgage commitment will be that you obtain homeowner’s insurance. In some cases, it can take up to a month to obtain a policy so make this a priority. If you are hiring a mover, confirm your closing date first. Although the contract does provide a closing date, this usually is an estimated date and not written in stone. Call your attorney to confirm the date! Prior to the actual closing, you are entitled to a “walk-through inspection” of the home. The purpose of this final inspection is to confirm that the home is in the same condition as it was when inspected (and also to confirm that any agreed upon repairs have been accomplished). If there are any problems, tell your lawyer. All walk through issues will be addressed at closing. In most cases, you will need to bring funds with you to closing. The funds must be in the form of a bank check or certified check. Make sure in advance that the funds are readily available. Next on your list: show up at the closing; sign all documents (until you have writer’s cramp); take the keys to your new home and start unpacking.