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Monday, March 24, 2014

How to Close on a House


We did it!!! We closed on our house on the 7th and moved in on the 15th. We are still living out of boxes {ugh!} and are still working on getting the apartment cleaned out. BUT, we did it! Yay!

Here is a summary of the events from when we got our offer accepted up to closing day:

What to expect when closing on your new home

Closing on a house can be crazy at times and very quiet at other times. The contract you sign when you make the offer lays out the details of closing. You get to decide how many days it will take to close and that closing is dependent on inspection and financing.

Typically closing takes 30 days, but you could decide on more time (like 45 days) or less. You might want less days if you are paying in cash and need to get in soon. You might choose longer if you know you are going to be out of town and want to schedule the closing date when you are more available. In the last 48 hours before closing, the final paperwork will be pulled together for your signatures. You will want to be very available during this critical time.

Once the offer is accepted, closing for the buyer typically looks like this:
  • Initial Paperwork
  • Home Inspection
  • Appraisal
  • Waiting (purchase home insurance)
  • Closing Paperwork
  • Keys
During this time, your realtor and lending agent is getting everything pulled together for escrow for the finalization of your purchase. There is a ton going on behind the scenes that you won’t be aware of. Lucky for you, you will only have these three contacts to manage (your realtor, your lender and escrow). The escrow agent will be the hub of the chaos in pulling everything together to make the transfer of payment and title.

Initial Paperwork

Once you close, expect some initial paperwork
from both the realtor and your bank
(image courtesy of Office Depot)
After our offer on the house was accepted, the next step was lots of paperwork and back and forth with our realtor and lending agent. I had taken the First Time Homeowner class, so I already knew what to expect. We already had pre-approval on the home loan and I was meticulously keeping track of my paycheck stubs and any other financials that I would need to explain.

Our lending agent needed to update our loan application and files, so I had to resubmit paycheck stubs, bank statements, retirement statements and the certificate of completion for the First Time Homebuyer class. She also ended up asking questions to confirm information on my bank statements. Is this recurring payment your rent? What was this deposit into your account from?

She needed the certificate of completion for the class because we applied for downpayment assistance (link to list of programs in Washington State) through Washington State Housing Finance Commision. The downpayment assistance program we applied for is called Home Advantage and has a maximum income limit of $97,000. It acts as a second loan at 0% interest with no minimum payments. The loan payment doesn't kick in until the mortgage loan has been fully paid off, either at the end of your loan term or when you sell the house. We are receiving almost $10,000 in downpayment assistance to help pay for the downpayment and closing costs.

After our lending agent received all the paperwork from us, she had a stack of papers for us to sign for the loan. I ended up printing them out at work and read through them and then signing them. I thought this was a mountain of papers... Little did I know how many papers would be generated at the end of closing!

Our real estate agent also had paperwork for us during the offer process and shortly after the offer was accepted. He also had more paperwork for us after the home inspection.

Home Inspection

Don, owner of Hartman
Home Inspections
(image courtesy of Hartman
Home Inspections
)
Depending on the contract that you signed when making the offer, generally your purchase is dependent on the inspection and the financing. Typically the contract is written so that you have 7 days to complete the inspection. This is how our contract was written.

We completed the house inspection the Friday after finding out our offer was accepted. It turned out that it was also Valentines Day, which worked out perfectly for us. I took half a day off from work to attend the inspection. Afterwards, we were so happy and had a wonderful Valentines Day together!

We used Hartman Home Inspections and Don (the owner) was wonderful. He went through everything he could based on visual inspection and found some things for us to fix right away and others in the next few years. He walked us through everything and talked about each item as they were discovered. He let us look at things with us, like peeking into the attic and looking at the knob-and-tube wiring.

After he went through everything, he gave us a slide show and went over everything with us again. We received an email with a copy of the report and some photos. We opted to also have a television inspection of the sewer, which we were given a copy of before he left.

Every house needs some work. Our house was built in 1952 and is going to require some updating to the electricity. The kitchen and bathroom was updated, since it was found to be grounded, but the rest of the house is wired with knob-and-tube wiring which we will need replaced. Also, half the house has galvanized pipes while the other is copper tubing. These will be near future and long term goals.

Overall, we were very happy with the results. We made a list of small items we wanted the seller fix, including the brand new dishwasher is leaking, the faceplate on the brand new fan above the stove is missing, the wiring on the hot water heater is the wrong size, and some weather stripping is missing on one of the doors. Pretty minor, especially since the owner is a licensed contractor that buys old houses and fixes them up to turn a profit.

Appraisal

The appraisal compares your home to other houses that
have sold. (image courtesy of How Stuff Works)
While the home inspection is for the buyers peace of mind, the appraisal is for the banks. They want to ensure that the house that they are providing a loan for is adequate collateral. That way if you foreclose on the house, they can recover the value of the loan.

I've heard that before the housing bubble burst, banks were padding their appraisal’s typically 20% above what it was actually worth. So when people started foreclosing, the house wasn't even worth the value of the loan. Doesn't help that house prices dropped drastically as there was too much supply for the demand.

When we received a copy of the appraisal from the bank, the value of the home was appraised at $2,000 over the selling price. Yay! There was no work orders with the appraisal. My understanding is that the appraisal could generate a list of items that need to be corrected before the bank is willing to provide a loan.

These items would be different than the list that our home inspector provided us. The bank wants to ensure that the house has a roof, is heated and has an oven. They are looking for structural problems that would make the house not livable.

If the appraisal came in lower than the selling price, there may have been a work order required to bring it up to snuff. Otherwise, I believe the selling price could be negotiated, the buyer could pay the difference between the loan amount and selling price, or we could have walked away from the purchase.

Lucky for us, we didn't have to worry about this. At $2,000 above the selling price, we know that we are getting exactly what we are paying for. The interesting thing about the appraisal report is that they list out similar houses that sold in the neighborhood and then take an average of these homes and add/subtract based on differences between our home and the other homes. It was interesting to check out what these other houses sold for and compare them to our new home.

Waiting

Waiting for our home purchase to close
(image courtesy of rb-d.com)
After the inspection and appraisal, we started the waiting game. Some things will come up. For example, we needed to choose homeowners insurance. So during this time we shopped around and got a few quotes.

One thing that is really important to keep in mind is to NOT making any new major purchases on your credit or debit cards. When I say “major purchases,” I mean anything of larger value. For instance, we were touring around the house during the inspection and our realtor pointed out that we will need to buy a new washer and dryer. After pointing this out, he reminded us that we CANNOT buy them until after closing.

The reason why is that it changes your debt to credit ratio. This ratio is used by your lending agent to determine how much house you can afford. Upsetting this balance right before the purchase can have huge impacts on your ability to get financing. Just wait until AFTER you have signed all the closing documents and have the keys in hand.

You want to avoid large payments from any of your accounts, really. If you have some cash hidden away that is invisible to the banks, then feel free to use it. I recall from the class that my real estate agent had a client drive up to the house inspection in a brand new car. The real estate agents face fell, as this could mean financing would not be established. The buyer walked up and said, “don't worry, we paid in cash!"

Day Before Closing

Plan for the paperwork to be ready to sign within 48 hours of closing. The escrow agent is waiting for everything to come in from all of the many people working behind the scenes. You just need to be patient and ready to go sign the paperwork when the escrow agent is ready.

For us, we were called the day before closing at around 2:15 pm. I was at work and for some reason I really wasn't prepared for this call. I kind of thought it would all happen on the day of closing, but in reality they need all the documents signed before closing day so that they can file it all with the County the day of.

She requested I come in at 3:30 pm. I asked for 4:00 pm. It was close! I had to bus out of downtown Seattle to the North Seattle park and ride where my fiancé picked me up. We then drove to my bank and got a cashiers check for the remaining balance owed. Then we drove out to the Escrow Agents office, which was in Kirkland (typically 30 minutes away, an hour in traffic). We showed up at 4:07 pm. We would have been on time, but there was bad traffic one exit away.

Are you ready to sign 1 MILLION documents? Whew! My signature was so tired afterwards.

Closing Day = Signing a Million Documents
(image courtesy of The Massachusetts Real Estate Blog)
Note that you do have to sign with the full name that you provided on the documents. So if you gave them your middle initial, then you need to sign with your middle initial. My fiancĂ© normally signs “Jon” but gave them “Jonathan” on the documents, so his signature on these documents was very different than what is on anything else.

The documents include an understanding of the loan terms, when you need to pay and then the title and if there are any liens or outstanding taxes on the property. For us, there was no surprises on the title. The documents are a legal transfer between the seller and buyer and are officially recorded with the County the next day.

They actually cashed our cashiers check while we were signing the documents. They then found out the bank goofed on the amounts owed, but they let us write a personal check since our bank is only in Seattle (we bank via credit union). {Update: After closing, they found that we still owed money for closing costs... And then we received a refund of $33! They just couldn't figure out the correct amount we owed.}

So my tip for you. Clear your calendar the 48 hours before closing and be ready to jump at the drop of a hat. They are going to call and want you to come in ASAP!

Closing Day (aka The Day We Got the Key!)

After everything gets filed with the County, the escrow agent calls your real estate agent and tells them it is done. Your real estate agent then calls you to let you know that the keys are ready to be picked up! Yay!

We got notice from escrow that everything was closed at around 4:45 pm on the day of closing. We had already been informed by our real estate agent that it was likely to occur between 2:00 and 4:00 but more likely later than earlier. We arranged to meet our real estate agent at a Starbucks at 5:30 pm.

After pulling up and shaking hands with our real estate agent, he just HAD to make a joke. “Sorry, guys, you don’t get the keys till Monday.” Then he laughed and gave us the key. We immediately did a happy dance!
Our house key! Of course, we have since
rekeyed the locks. :)


Have you closed on a house recently? Any words of advice/tips for others? Was there anything particular about closing that gave you stress? Share with us in the comments below!

Next up is Moving Day (plus my Moving Checklist).

6 comments:

  1. Congrats-I went through it a couple of years ago. It is well worth it.

    ReplyDelete
    Replies
    1. Thank you! We are very happy to be in our home. :)

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  2. Girl! This is SO helpful! I have even purchased a house before and I totally want to read this over and over again before we buy the next one! Thanks so much for all of the info. CONGRATS on the new place!!!!

    ~Abby =)

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    Replies
    1. Abby, Thank you so much! I'm glad it was a worthwhile read. We are still struggling to get settled in. I was lying in bed the other night and was shocked into realizing how soon the wedding is coming up. Gulp! So much to do!!! Craziness! :D

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  3. Congrats! We recently went through the same thing. We sold and bought. Stressful but so rewarding too.

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  4. You make the whole process look easy! And that is a good thing, so people won't be discouraged when doing their own house hunting. People have different experiences on the process, and it could either be really good or devastatingly bad. It could even get frustrating if you're delayed by some reason, such as buyers and sellers backing out. At least with this post, people will know what to expect. Thanks for sharing, and I hope moving it wasn't that difficult!

    Barry Sutton @ Iron Point Mortgage

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