I'm under contract to buy a house! Now what?

Congratulations on negotiating the deal for the purchase of a home! You have probably been in a whirlwind of house-hunting and offering and counter-offering. Now you want to catch your breath and celebrate a bit. Not so fast! You have things to do, and they may be a little less fun than house-hunting. The clock is now ticking.

One thing you should NOT do is go shopping for appliances, furniture, or a new car! I tell my buyers not to even give their names (muchless social security numbers and/or home addresses) to any salesperson between contract date and closing date. If you want to window shop, fine; but do not provide identifying information to anyone selling furniture, cars, appliances, sound systems or offering you credit or auto pay options on purchases. Even if you join a health club or apply for cable or internet, that can impact on your credit. Just don't do it!

I also caution buyers to be sure all payments are made on time or early. We want your credit to be the same (or better) as it was the day you first spoke to a lender about purchasing a home. Speaking of a lender, if you have not already chosen your lender, the day you go under contract is a good day to talk to your lender. We used to tell buyers to get Good Faith Estimates in writing from two different lenders, before choosing a lender. Many lenders no longer give GFEs in writing prior to having a contract in hand, so buyers may have to get verbal estimates from lenders. If you do not yet have a lender, get moving! If you do have a lender, you or your agent should send a copy of the contract to the lender.

Now that you have a contract and a lender, be sure to get your Good Faith Estimate in writing and keep it. If you are confused (or even suffering from "sticker" shock"), ask the lender and/or your real estate agent to go over the GFE with you. Everyone in the transaction wants you to be prepared to bring the proper funds to closing. Closing is NOT the time for sticker shock or surprises. Get all of that behind you today or tomorrow.

Your agent and your lender can help you make a calendar of deadline dates. You have two important timeframes: your loan commitment and your inspection period.

First on your list should be completing your loan application and gathering the required documents, but you should also schedule your home inspection right away. Home inspectors, the best ones anyway, can be busy; and you want to be sure that you get a date that will allow you to stay in the timeframe specified on your contract. Most contracts allow a 10 to 15 day inspection period. Your inspection must be performed and your Inspection Notice presented during that time.

Your lender will schedule the appraisal, which also must take place very early in the contract period. An appraisal is not an inspection, by the way. The lender requires an appraisal. The appraisal has as its primary purpose a determination of value, taking property condition into consideration. An appraisal attempts to predict whether or not the lender's financial interest in the property is sound. While an appraisal may cite some property deficiencies, that is not its primary purpose. Good and bad points go together to help determine the value of the property. Please do not let anyone tell you that an appraisal takes the place of an inspection. It does not!

An inspection is entirely different than an appraisal! The inspection evaluates the physical condition of a house, and its purpose is to protect you, the buyer--or at least to inform you of the physical condition of the house. Your lender does not require an inspection, but you need to get one so you will know more about the house than "meets the eye." In fact, most real estate agents will want you to sign a disclaimer if you opt not to have an inspection. That's how important an inspection is. A typical inspector will look at the foundation, the roof, mechanical devices, the electric service panel, wiring, and plumbing. Ask potential inspectors what their service includes. An inspector does not "pass" or "fail" a house. The inspector comments on the various systems and components in the house. The inspector may say, for instance, "furnace is near the end of its functional lifetime." That means the furnace may be working now, but it is near the end of its normal life. It does not mean you have to abandon the house of your dreams, but you need to be prepared for an expensive repair. You may have more than one inspection--whole house, termite, mold, lead based paint (for houses built prior to 1978), septic, well, structural. All inspection costs must be paid by you, even if the sale does not go through.

Upon reviewing your inspector's report, you may decide to make additional requests of the seller, either in the form of repair requests, a price adjustment, or opting out of the contract entirely. Your agent makes those requests for you in writing, but all requests must be made at one time and before the inspection deadline passes. Usually, the seller has the right to also see the actual report provided by the professional inspector or inspectors.

Your lender will tell you when the appraisal is done and when your loan has been approved by underwriting. Again, those must be done during the timeframe specified on your contract. Your part in this process is being sure that you get all documents completed and to your lender as fast as possible. Check in with the loan officer to be sure your package is complete and that your loan is progressing according to the proper timetable.

You will be required to provide an "insurance binder" prior to closing. That simply means you need to select an insurance company for your homeowner's policy. You might want to get bids from more than one company, and the insurance agent(s) may want to visit the house before giving bids and/or writing a policy. Your real estate agent can provide access to the house.

Once you have the inspection and loan commitment processes complete, you will need to schedule a final walk-thru of the property prior to closing. Ideally, your walk-thru should take place after the owner has moved out. Depending on when your contract calls for you to take possession of the house, that may not be possible. Even if the seller is not moving out prior to closing, you should re-visit the property prior to closing to be sure that it is in the same (or better) condition as it was when you went under contract. In my area, the most common scenario is for the seller to move out of the house prior to closing and then to give possession to the buyer at closing. Practices differ, however, in other parts of the country. As a buyers' agent, I like to have the seller completely moved out of the house when my buyers do walk-thrus. That way, the buyers can see all walls, ceilings, and floors without furniture in place.

Prior to closing, you will receive a statement which details all of the costs associated with your purchase. If you are using a loan to pay for the purchase, that declaration will come in the form of a HUD-1 statement. You can use your GFE to compare the costs on the HUD-1. Your HUD-1 will have a "bottom line" that tells you how much money you need to bring to closing. Your lender will also have a "bottom line," and the lender will send those funds to the closing company. You must bring your part of the funds to closing in the form of certified funds, so be sure to leave enough time on the day of closing to go by your bank to get a certified check. You must also bring a federally accepted form of positive ID to closing. A driver's license with your photo is the most common type of ID, but check with the closing company for alternate forms if you need to do so.

Expect the actual closing to take at least an hour to an hour and a half--and that's if you skim through the documents, rather than reading all of them. Your lender may be able to provide you with an advance copy of the documents.  I advise clients to schedule an early afternoon closing and then to take the rest of the afternoon off of work on the day of closing, if possible. Returning to work is the last thing you want to do when you finally have those keys in your hand!

You might even want to go visit a furniture store. . .

©2010 Liz Lockhart liz@lockhartlegacy.com (if you reblog, you must link back and leave copyright tag intact)