What to Expect
When a seller accepts your offer to buy a home, the house is considered to be under contract until the sale is finalized on closing day. During the time your home is under contract, certain procedures such as home inspections, appraisals and title inspections take place.
A home inspection is usually part of the process of buying a new home. A home inspector checks the structure of a home’s interior and exterior for defects and inspects electrical wiring, plumbing, and heating and cooling systems. Even if your lender doesn’t require an inspection, you should still get one so you’re aware of any repairs the home needs. In addition, the inspector can instruct you on what type of maintenance is needed (for furnaces and water heaters, for example) and give you an idea how soon certain elements like the roof and siding may need to be replaced.
A home inspection contingency in your purchase agreement also ensures you can back out of the contract without penalty should the inspector find a significant problem with the home. Inspections can also reveal the need for repairs that you can ask the seller to complete before closing or provide a credit for at closing.
You should be present throughout the home inspection. While not all home inspections are identical, during a typical inspection, the inspector will:
- check the house foundation for signs of cracking or settling
- inspect the roof and gutters for damage, poor installation and leakage
- examine the exterior walls for missing siding, cracking and damage
- test the garage door for proper functioning and make sure the garage is properly ventilated
- inspect the plumbing and pipes
- examine the electrical wiring for safety features and potential fire hazards
- make sure the water heater is properly installed and secured. The inspector will also note its age, so you’ll have an idea as to when it might need to be replaced.
- examine heating, venting and air conditioning units
- test the home’s smoke detectors
- make sure the bathrooms and laundry rooms are properly ventilated
Your real estate agent or lender can connect you with a home inspector. You’re responsible for paying for the inspection.
Other suggested inspections, some of which may be required (depending on your loan type), include termite inspections and radon and water testing.
The job of a licensed professional real estate appraiser is to tell you and your lender how much the home you’re buying is worth based on the home’s condition, location, features and the current real estate market.
Lenders require an appraisal before giving you a mortgage because they want to make sure you aren’t borrowing more than the house is worth. Should you become unable to make your mortgage payments, the lender can foreclose on your home and sell it to recoup the money loaned to you. If you were to borrow more than the home’s market value and become unable to make payments, the lender would lose money on resale.
An appraiser will examine the interior and exterior of the home in order to note anything that might adversely affect the home’s value. This isn’t the same as the in-depth inspection completed by a home inspector.
An appraiser determines the value of a home based on several factors, including:
- sales of similar properties in the area
- market trends and house amenities, including square footage and number of bedrooms and bathrooms
If the appraisal comes in below your purchase agreement price, you can negotiate with the seller to lower the price. Lenders won’t approve a loan for more than a home’s appraised worth. That leaves you with two options: pay the difference from your own funds or start the search for a different home.
While your lender will order the appraisal, you’re responsible for paying the appraisal fee. Generally, you won’t need to be present for the appraisal and will receive a copy of the report.
Title Search and Title Insurance
You’ll also want to make sure the home is free from any legal claims against it. A title company searches property records to make sure the home’s seller legally owns the property and that no one else can claim ownership of it. During this title search, the company also looks for outstanding mortgages, liens, judgments or unpaid taxes associated with the property. A search also reveals whether there are any restrictions, easements, leases or other issues that might affect your ownership of the home.
A title company also may request a property survey to determine the boundaries of the plot of land that a home sits on and if there are any encroachments on the property by neighbors that may impact ownership.
After a title is validated, the title company will issue a title insurance policy. This protects you and your lender against claims or legal fees that may arise from disputes over the property’s ownership. Title insurance policies include:
- Owner's title insurance, which protects you in the event that an undetected title problem, such as forgery or undisclosed heirs, later arises.
- Lender’s title insurance, also called a loan policy, which protects your mortgage company against the same types of problems.
Most lenders require lender’s title insurance. You don’t have to get owner’s title insurance, although it can be a good idea.
You’ll pay title insurance as a one-time fee at closing. The cost varies, depending on the amount of the loan and the state where you live.
After your home inspection, appraisal and title search are complete, you’ve secured financing with a lender, and you or the seller have addressed any issues with home repairs, it’s time to close on the home.
Closing, or settlement, is when you sign off on all of the legal documents related to your mortgage and homeownership is transferred to you. You’ll also pay certain closing costs and fees. Your Closing Disclosure (formerly HUD-1 Settlement Statement) provides final closing costs, and you’ll review this document prior to closing.
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