What to Expect During Closing

You’ve made it to the fourth, and final installment of Your First-Time Homebuyer’s Guide. In this section, we will cover the home stretch of your homebuying experience, “closing,” as shared in Your First Home (Second Edition), written by Gary Keller and Jay Papasan.

Even though the final stage of the homebuying process can let loose a lot of feelings, it is really all about checking off boxes. In your closing stage, your agent and lender will be focused on verifying that everything is as it should be: making sure your finances are in order, finishing any paperwork, and doing some final checks on the house. They will also confirm the home’s value and legal status with the lender, which includes a survey, appraisal, title search, and a final check of your credit and finances.

Your agent will keep you posted on how each is progressing, but unlike the previous hands-on stages of your homebuying adventure, your work is pretty much done. At this point, you don’t have much to worry about other than keeping your finances tight and your credit clean. You’ll also need to confirm with your agent that you’ll have all the necessary documents and funds you’ll need so you can move smoothly into your closing day – and into your new life as a homeowner.

Final Verifications for the Lender

Just as you confirmed the value of your future home through a property inspection, lending institutions also take certain steps before finalizing a mortgage to make sure they are backing a sound investment.

These include the following:

• An appraisal to confirm the value of the property

• A survey to confirm the legal boundaries and entitlements of the property

• A title search to verify the ownership of the property

• Title insurance to protect against mistakes in the title search

Chances are good that these final steps – which, incidentally, you will pay for as part of your closing costs – will go smoothly. The whole point of these pre-closing verifications is to look for problems that occasionally arise.

If you run into a patch of trouble, think of it this way: You’ll feel lucky if a title search or survey reveals a property’s questionable ownership or boundaries before closing, rather than after the house is already yours.

Countdown to Closing

Once you and the home have checked out, you’ll receive your final loan commitment. Only then will the closing company schedule a time and place for the closing. (In Canada, this should be discussed with your lawyer.)

As the big day approaches, confirm with the appropriate parties that you have everything you need in order to close and transition smoothly into your new home.

This will include the following:

• Settlement statement

• Certified funds

• Evidence of insurance

In your closing stage, your agent and lender will be focused on verifying that everything is as it should be: making sure your finances are in order, finishing any paperwork, and doing some final checks on the house.

Final Walk-Through

The day before closing, you’ll get the opportunity to stroll through the home that will soon be yours. Take a deep breath. Feel proud. And then, look around carefully. The final walk-through provides your last chance to make sure the home is clean and all requested repairs have been made. If by some chance something is left undone, let your agent know immediately so she can negotiate with the seller’s agent.

Closing Day – Congratulations!

Closing day is a life-changing event: you walk in a renter and walk out a homeowner. Whatever you feel the morning you wake up to close, there’s one thing you can count on – you’re prepared. On closing day, you can expect to sit at a table with a bunch of pens and sign your name so many times you start to feel like Captain Kirk at a Star Trek convention.

The settlement agent who runs the show may be an attorney, a representative of a title company, or someone else entirely. You may be sitting across the table from the seller, or you may be all the way across town. Your agent or a member of the agent’s team may attend to explain any last-minute questions.

During this process you will:

• Finalize your mortgage

• Pay the seller

• Pay your closing costs

• Transfer the title from the seller to you

• Make arrangements to legally record the transaction as public record

You might get the keys immediately, or the key handover might take place only after the funds clear and the transaction is legally recorded.

You’re a homeowner!

Suddenly, it’s all over. You’re no longer a home seeker or a home buyer. You’re a homeowner! That means you’re building up equity, enjoying tax benefits, and reveling in the freedom to paint your dining room any color you please.

Introduction

Welcome to Your First-Time Homebuyer’s Guide, Part Three!

If you’ve completed parts one [LR1] and two[LR2] of the series, you’re practically a first-time homebuyer pro as we’ve covered a lot, including: financing, how to find your home, partner with a real estate agent, and more. In the third installment of this series, we’ll continue to add to your homebuying knowledge base with tips featured in Your First Home (Second Edition), written by Gary Keller and Jay Papasan.

Making an Offer

No matter the market, there are three basic components of any offer: price, terms, and contingencies (or “conditions” in Canada).

Price: The right price fairly reflects the market value of the home you want to buy. To find this price, your agent will pull together a competitive market analysis (CMA), which is a set of recently sold homes that resemble one you want in size, condition, location, and amenities.

These records are also called “comparables” or “comps.” You’ll get the best market insights from the homes most similar to the one you’re looking for. Your set of comps will enable you to determine an average cost per square foot, which forms the basis of a competitive offer.

Terms: You and the seller have to agree on many details, such as when the deal will close, whether the seller will keep any of the decor (such as window treatments or appliances), and who pays for closing costs. (Though, in Canada, the buyers always pay the closing costs.) These factors are called “terms,” and they give buyers and sellers additional flexibility in crafting a winning deal.

When it comes to terms, remember that everything is negotiable. However, different markets have informal rules governing the kinds of requests you can make of sellers. Your agent will let you know what the seller will probably expect, as well as the pros and cons of deviating from market norms. The six basic terms in a real estate offer are: schedule, conveyances, commissions, closing costs, home warranty, and earnest money

Contingencies (or Conditions): These clauses let you out of the deal if the house has a problem that didn’t exist, or about which you weren’t aware, when you went under contract. They specify any event that will need to take place in order for you to fulfill the contract.

Common contingencies include:

• Inspections - protecting you from paying too much for a home that’s hiding MAJOR problems.

• Financing - letting you out of the contract in the event you don’t qualify for a mortgage

• Appraisal - guarantees that the home will be professionally appraised and you will only purchase if the value of the appraisal is at least as much as what you agreed to pay on the home.

Negotiation

Once you and your agent have written a contract, your agent will submit it to the seller’s agent. The seller may write a counteroffer that, for example, asks for an earlier closing date and a slightly higher price. Then the ball’s back in your court to decide whether to accept their changes or to counter their counter. Your agent will do all the talking with the seller’s agent, providing a buffer between you and the seller and saving you the stress of in-person negotiations.

When you and the seller reach an agreement and both parties sign the contract, that check you wrote as earnest money will be deposited into an escrow account.

Your agent will do all the talking with the seller’s agent, providing a buffer between you and the seller and saving you the stress of in-person negotiations.

Do Your Due Diligence With a Home Inspection

Next, it’s important to complete a home inspection. An inspection exposes your dream home’s hidden flaws, so you can go back to the seller to negotiate. Typically, sellers will either agree to fix the problems or reduce the sales price to cover the cost of fixing them.

Before you hire your inspector, review the seller’s disclosure (known as a “seller’s property information sheet” in Canada), a written statement of the owners’ knowledge of the property’s current condition. Your agent will get the disclosure from the seller’s agent. The requirements for what exactly must be shared in a seller’s disclosure vary state by state, but they usually must include any information about large repairs or structural issues.

Make sure to attend the inspection if you’re able and thoroughly read the inspection report after. Once you’ve reviewed and partnered with your agent to decide what to have fixed in order to make your purchase, your agent will convey your requests to the seller for final negotiations.

After the inspection and negotiation, the last few steps between here and closing – which include a survey, title work, and appraisal – are handled primarily by your agent and lender.

Introduction

As shared in the second edition of Your First Home, written by Gary Keller and Jay Papasan:

“Buying a home is a big decision – particularly your first home – but it is one of the best choices anyone can make. It’s a place that is entirely your own. Something you can paint, renovate, and live a full life in. Secondly, the reality is that homes are an incredible way to accumulate generational wealth. Because home isn’t only where your heart is, it’s where your money is, too. There are few places you will treasure more than your home and no place that will add more to your personal treasury.”

While the prospect of homeownership is exciting, it can also be filled with complexities as you embark on the journey for the very first time. Yet, have no fear! Below you’ll find part one of a complete guide to first-time homebuying, courtesy of Your First Home.

When finished, head over to part two, here.

Deciding to Buy

First-time homebuyer fears can range from “I can’t afford to buy a home” to “I can’t buy a home because my credit score is too bad.” While it can be natural to have these thoughts, it’s important to face fears with facts. Let’s take affordability, for instance.

As Keller and Papasan write, “Until you do the math, you don’t know what you can or can’t afford. If you are currently paying rent, generally you can afford to buy. From a financial point of view, in the United States, the tax savings on mortgage interest alone usually make up most of the difference between rent and a mortgage payment – the tax write-offs you get at the end of year will generally help you save a significant amount of money.”

Whenever a fear comes to mind, explore with curiosity and get set on finding the facts.

Finding Your Agent

The legal, financing, and regulatory aspects of real estate transactions are very involved. To provide as much protection as possible for you, it’s wise to find a licensed real estate agent. They will serve as an advocate for you and your interests throughout the entirety of the homebuying process. Their job is about much more than simply finding you the right home; it’s about listening to your needs, anticipating problems, and maintaining standards.

The main duties of your real estate agent include:

• Educating you about your market.

• Analyzing your wants and needs.

• Guiding you to homes that fit your criteria.

• Coordinating the work of other needed professionals.

• Negotiating on your behalf.

• Checking and double-checking paperwork and deadlines.

• Solving any problems that may arise.

Here are a couple of questions to ask as you look for a real estate agent:

• Why did you become a real estate agent?

• Why should I work with you?

• What process will you use to help me find the right home for my wants and needs?

Because home isn’t only where your heart is, it’s where your money is, too. There are few places you will treasure more than your home and no place that will add more to your personal treasury.

Securing Financing

Although virtually everyone finds the thought of owning their first home exciting, taking out a mortgage can be a daunting prospect. In general, you’ll probably discover that mortgage loans are less confusing than you might think. The differences between each type of mortgage loan boil down to four basic factors:

• Down payment - Down payment - The initial payment you make toward your home. It’s calculated as a percentage of the entire cost of the house. Historically, homebuyers have been asked to put 20% down, and it has its advantages as it frees you up from private mortgage insurance or “PMI.” But, it’s not necessary. In fact, you can put as little as 5% down (or less) to still own a home! And, you can leverage down payment assistance programs, too. [LR3]

• Interest rate - An interest rate [LR4] is a fee or amount charged by a lender and is usually a percentage of the loan amount. Interest rates are implemented when we use credit for a purchase. And, like credit card rates, home loan interest rates are variable – they change with the market. In general, people want the lowest interest rate possible because that means they’re paying less money in interest over the life of the loan. In addition to saving you thousands in the long term, a lower rate will also reduce the amount you pay each month.

• Term - A mortgage loan’s term will determine how much interest you pay over the life of the loan and how quickly you build equity by paying it down. Different mortgages come with different schedules around repayment. In the case of fixed-rate mortgages, loans are scheduled for repayment over larger swaths of time, like 15, 20, or 30 years. Shorter-term loans are good for people who want to build equity quickly and who can afford a higher monthly payment.

Ready to learn more? Advance to Your First-Time Homebuyer’s Guide (Part Two) where we explore how to identify your home criteria and ultimately, find your home!

Introduction

In First-Time Homebuyer’s Guide (Part One) [LR1] we covered key elements such as deciding to buy, finding your agent and securing financing. In part two, we will explore three more components of the first-time homebuying experience so you can embark on it with ease and confidence. Each magnificent tip below is brought to you courtesy of Your First Home (Second Edition), authored by Gary Keller and Jay Papasan.

Identifying Your Criteria

In the homebuying process, an initial consultation with your agent is your way to make sure you are prepared. You may think you already have a pretty good idea of what your first home might look like, and you’re probably right. However, you want to be sure you haven’t missed something. That’s why it’s important to sit down, talk through things with your agent. Your agent will help you get to the heart of what you want, why you want it and establish search criteria around what you truly need. Recognize the right home will meet all your needs and as many of your “wants” as possible.

As you and your agent work to establish your criteria, some questions you should ask yourself may include:

• What do I want my home to be close to?

• What do I want my neighborhood to be like?

• How much space do I need?

• Would I be interested in a fixer-upper?

• What features do I need?

• What amenities do I want?

• What does my home have to have now?

• Of all my wants and needs, which are the most important?

Finding Your Home

No matter how long it takes or how many stops there are on your journey, finding the right home to make an offer on is essentially a four-step process:

Determine what houses you want to see.Your agent, as a real estate professional, will have access to the local MLS (Multiple Listing Service). This service acts as an aggregator of available properties, and it isn’t readily available to the public. The MLS will detail a property’s features, its current status (such as whether it’s just listed or under contract) as well as its market history. Using your criteria, your agent can automate search results so that you’ll be alerted when property matches arrive on the market, and they’ll be added to a collection in your home search app.

If you see something that you’d like to check out, contact your agent and let them know. Even though your agent is diligently watching the market for you, don’t take your eyes off the literal and digital roads! By driving around neighborhoods where you want to live, you may be able to catch for sale or coming soon signs in front of properties that haven’t hit the MLS yet or simply make your heart go pitter-patter.

Check out homes that match your criteria. As you and your agent move into the home-viewing phase of your homebuying journey, don’t be afraid to ask to look at any house that you think could be a match for your criteria. However, don’t forget that you created your criteria for a reason: to help you get what you want. Your agent will be able to guide you on a well-curated search so that the homes you view are closer to your wants and you may not need to tour as many properties.

As you navigate your home search, be on the lookout for the BIG stuff first - structural damage. Structural damage refers to concerns about the home’s main systems (plumbing, electrical and more). Some signs of structural damage may include major cracks in the foundation, water stains on the ceiling, floors or walls or jagged or diagonal cracks inside the house (especially over windows or doors.)

As you continue, you’ll learn more as you go and can begin noting other details, such as:

• How you like the neighborhood at different times of day

• Traffic patterns

• The way noise carried

• Floor plan preferences

• Storage requirements

Create a rating system. After a day or two of looking at properties, it can become hard to remember which homes were appealing, which were appalling, and why. In fact, after viewing numerous homes in a few hours, they can become one big blur. One of the best things you can do is create a system to help you rate, evaluate, and remember each home as you go.

Pro Tips: We suggest you have some way to take notes as you go: Use an app on your phone, take photos, or even bring good old-fashioned pen and paper with you to help you remember each home distinctly. Write down the address of each property you visit before you get out of the car. While you tour the home, take short notes about the things you like and don’t like (including any areas of concern), and note any distinguishing features (for example, a purple birdhouse or a stained-glass window) that will jog your memory after a long period of looking.

And don’t forget to snap some photos! Whipping out your smartphone to take pictures of the property is a great way to track the homes you’ve visited.

Decide to make an offer. Which we cover in the third installment of the First Time Homebuyer’s Guide. Read on to learn about making an offer and negotiations.

Recognize the right home will meet all your needs and as many as your “wants” as possible.