Sealing the Deal on Your Home Purchase

So you’ve found your dream home or maybe you’re buying your first home. You’ve made your bid and your offer was accepted. Now what?

It’s time to close, which means inspections, financing and warranties. Let’s take a look at how to navigate the all-important closing process.

Home Inspection

The home inspection is vital, and you should shop around for the inspector or company with whom you are most comfortable. You do not have to use any specific company or referral. During this inspection, the home inspector is like a doctor giving a patient a thorough medical exam. If possible, you should be present with the inspector so he or she can explain each item as they move through the inspection. If you are not able to attend, then a detailed report will be provided to you for review.

In this report, you will see any potential red flags or even bargaining chips to help you with the purchase. Some red flags could be things like mold, a damaged roof, poor electrical wiring, and various other items. Some bargaining chips could include windows that need to be replaced, chipped paint, carpet stains, etc. Bringing these items to the attention of the seller could reduce the price or increase the seller’s contribution toward help with closing costs. The report will include information on the structure of the home and the integrity of it. The report should also include pest control, such as termites to ensure the house is structurally sound and protected.

Types of Home Mortgages and the Application Process

There are different types of mortgages you may choose from. The most common type is a 30-year fixed mortgage. The monthly payment will not change for 30 years (excluding homeowner’s insurance and possible homeowner’s association fees), and the interest rate is locked in. There is also a 15-year mortgage, which will greatly increase the monthly payment compared to a 30-year loan, but the amount of interest you will pay is greatly reduced over the life of the loan.

Buyers will also want to be familiar with Veteran’s Administration loans for those who have served in the military. These loans typically have attractive interest rates and reduced closing costs. There are also Federal Housing Authority and United States Department of Agriculture loans designed to make home ownership more achievable for people who qualify.

Adjustable-Rate Mortgage (ARM) loans are available, but the interest rate and the payment rises and adjusts as interest rates increase. For example, a loan listed as a 5/1 ARM indicates that after 5 years of the same interest rate, the rate can then change once a year for every year after.

Applying for the loan itself typically involves submission of several documents. You will need two to three years of W-2s, at least two recent paystubs, two to three years of tax returns, and a credit check will be run. It is important not to have credit card balances during this process as this could negatively impact your score and cause you to secure a higher interest rate.

If you are working with a real estate agent or attorney, they should perform a title search for you. The title search ensures that the person you are buying from holds the title to the home. In some cases, fraudulent titles can be transferred to unintended third parties and cause a headache. A title search will alleviate these worries.

You will also want to secure home insurance for your purchase. There are hundreds of components that go into home insurance but think of it like auto insurance. You must have auto insurance in case anything happens to your car or if you are financing your car. Likewise, banks want to know the property you are borrowing money for is protected.

Home Warranty

A home warranty is an item that you can purchase or ask the seller to provide in the closing process. The home warranty is usually valid for a year and can be bought or extended each year if you choose to do so. The warranty will cover things that your homeowners’ insurance policy will not. It covers electrical issues like appliances and wiring and plumbing issues as well. Home warranties are more cost-effective than trying to replace appliances or plumbing structures yourself.

Finalize the Sale

After these steps, you will be ready to close. At this point you have agreed to purchase the home, hammered out all (if any) issues from the inspection, been approved for a mortgage, and are ready to buy. You will typically wire your closing amount (also referred to as “cash to close”) to the mortgage company a few days before the closing. The closing location will be provided to you and is usually a real-estate attorney or title agent’s office. Be ready to sign a multitude of forms and bring a valid ID. Once everything is signed and notarized, congratulations will be in order because you will be a homeowner!