Your oﬀer is accepted. Now it’s time to get to work. Before we can close on the purchase of your new home, we need to take a few more steps to make sure the purchase is a sound decision.
Step 1: Home Inspection / Property Survey
As the buyer, you have the opportunity to hire a professional inspector to evaluate the condition of the home. An inspection clause is included in the written contract given to the seller.
The goal of a home inspection is to give you an objective, independent and comprehensive analysis of the physical condition of your potential new home and check for any safety issues that might otherwise be unknowable.
A professional inspector will check on the structure, construction and mechanical systems of the house. This usually includes checking these areas:
- Electrical systems
- Plumbing and waste disposal
- Water Heater
- HVAC System
- Water source and quality
- Lead Paint
- Radon gas
You will receive a written report of the inspection and an estimate of the cost of any and all repairs. If you choose to be present during the inspection, you can ask your inspector about unique features of the property and get his or her opinion on the necessary maintenance for diﬀerent areas of the property.
Depending on the results of the inspection, you will have the opportunity to:
Get out of the written oﬀer if major problems are discovered
Renegotiate the purchases price to account for necessary repairs
Negotiate that repairs are made by the seller before ﬁnal purchase of the property
Your lender may also require that a legal land survey be completed of any property on which they issue a mortgage so that they can obtain a clear lender’s title insurance policy.
A surveyor will determine:
Whether the house is within the property borders
Whether there are any encroachments on the properties by neighbors
The extent to which any easements on the property may aﬀect legal title
Step 2: Clearing the Home Title
Simply explained, “title” is the right to own, possess, use, control and dispose of property. When you buy a home, you are actually buying the seller’s title to the home. A deed is the written legal evidence that the seller has conveyed his or her ownership rights to you.
Before the closing meeting when the actual transfer of ownership occurs, an attorney or title specialist generally conducts a title examination. The purpose of the title examination is to discover any problems that might prevent you from getting clear title to the home. Generally, title problems can be cleared up before settlement. But in some cases, severe title problems can delay settlement, or even cause you to consider voiding your contract with the seller.
Some “clouds on title” can be corrected relatively easily while others can become quite complicated to remove. You should insist on being kept informed of every step in the title examination process. If title problems are uncovered, it is important for you to understand your legal rights.
What is Title Insurance?
Title insurance is the best way to protect yourself against title defects that have occurred in the past, which may not appear until after you’ve taken ownership of the property.
Before a title insurance policy is issued, a title report is prepared based on a search of the public records. This report gives a description of the property, along with any title defects, liens, or encumbrances discovered in the course of the title search. It is diﬀerent than casualty insurance in that you pay a one time fee and it protects against past (as opposed to future) events.
Title insurance will protect you against title defects that were not discovered in the course of the title search. If such a defect were discovered later, your title insurance would cover you. If title problems are severe enough and not covered by insurance, you could actually lose your house. A title insurance policy protects you and your heirs against title defects for as long as you own your home.
Step 3: Getting an Appraisal
Once you have determined that there are no defects on title and all inspection concerns have been resolved, it is time to order an appraisal.
An appraisal is an estimate of the value of a property made by a qualiﬁed professional. The appraisal of your prospective home is as important as your credit history in obtaining a mortgage. After all, the property you are purchasing serves as the collateral for the loan.
Although the primary goal the appraisal is to justify the lender’s investment, it also protects you from overpaying. Your lender will generally hire the appraiser and will charge you as the buyer a fee for the service. If the appraisal falls short of the amount you wish to borrow you may be refused a mortgage or oﬀered a smaller amount on the mortgage. Your oﬀer contract will be contingent on whether the appraisal comes in at or above the purchase price you and the seller have agreed upon.
Step 4: Closing
Once all of the purchasing steps and contingencies are cleared, it’s time for closing!
Closing is the legal transfer of ownership of the home from seller to buyer. It is a formal meeting that most parties involved in the transaction will attend. Closing procedures are usually held at the title company or lawyer’s oﬃce. Your closing oﬃcer will coordinate the signing of documents and the collection of and disbursement of funds.
In order to ensure a smooth closing you will need to:
- Obtain a homeowners insurance policy and provide this information to your lender and/or closing agent.
- Review the Settlement Statement or HUD1 that your lender or closing agent will provide you 1 to 2 days before closing. These documents will contain a detailed description of all costs associated with the transaction, including the exact dollar amount you will need to bring to closing.
- Verify with your lender and/or closing agent any other items that you need to bring with you such as a valid driver’s license or other form of identiﬁcation
- Conduct a walkthrough of the property prior to closing. This will give you an opportunity to see that the condition of the house is the same as it was at the time of contract. Additionally you will be able to ensure that any repairs agreed to by the seller, based on the inspection, have been completed.
If you have a brokerage relationship with another agency, this is not intended as a solicitation. All information deemed reliable but not guaranteed.