POST CONTRACT TO POSSESSION
This is Part III of three parts listing the broad steps in the home buying process. Parts I and II were included in prior posts. The steps listed are generally in order of occurrence. Although, some will occur at the same time or cross other steps.
Checks – The checks you wrote when the offer was prepared are delivered by your REALTOR to the seller’s agent (option money) and to the title company (earnest money – generally 1% or so of purchase price.)
Option period – The standard contract provides an option period in which the buyer may back out of the contract with no reason required. During this option period you and your agent will complete the steps not completed during due diligence and have inspections performed. Your REALTOR can provide you names of general inspectors and those that can review for termites, foundation issues or other specialized concerns. You will need to obtain the inspection reports and negotiate repairs to be paid by the seller prior to the end of the option period.
In addition, you will want to complete due diligence with your insurance agent by obtaining the CLUE report if you have not previously done it, and obtain an estimate of homeowner’s insurance and flood insurance.
Loan Application – As soon as the contract is executed you will start the loan application process. As part of this, the bank will request an appraisal. Your REALTOR may provide data relative to comparable homes to the appraiser. The bank will also be concerned about the status of the title and will wait on the title commitment from the title company. The buyer can back out of the transaction if the financing is not approved.
Title Company – The title company holds the earnest money until release is approved by the parties to the contract or closing, depending on whether the contract closes. They also review the title for encumbrances (issues), provide title insurance to the buyer and the buyer’s bank, ensure all conditions of the contract are met and perform closing.
They will provide the preliminary title commitment (which notes any issues) to the bank, the buyer and the seller. Each party will have a chance to review it for issues. The bank or the buyer may back out of the transaction if there are issues with the title.
Insurance and Utilities – You will want to arrange for your homeowner’s and flood insurance to commence on your closing date. If it is hurricane season, it sometimes takes 30 days after purchase for flood insurance to be effective. So, you will want to discuss this issue with your insurance agent.
Walkthrough – You will perform a walkthrough the day of closing but prior to closing or the day before closing. The purpose is to ensure no major issues have arisen (e.g., a fire) and that repairs to which the seller committed have been made. The buyer may want an inspector to review repairs made.
HUD-1 – Also called an allocation or settlement statement, the HUD-1, or similar document if there is no financing, sets out the sales price, down payment, fees and other financial activity associated with the transaction. The buyer and seller and their REALTORS will review the statement in detail to ensure all amounts are appropriately calculated and allocated. It cannot be prepared until the bank provides the loan commitment. So, in many cases, this is right before closing.
Closing – Prior to closing the buyer will purchase a cashier’s check or arrange a wire transfer for the “down payment” (amount shown as paid at closing on the HUD-1.) At closing (which can be an event for each party or one event for both parties), each party signs numerous documents transferring title and setting up the loan. During closing or shortly after (could be the next day), the bank funds the loan to the title company. Once closing and funding have occurred, the buyer owns the house. Unless the seller enters into a short-term lease with the buyer, the buyers are given keys and can take possession.
Congratulations. It is now your home.