You found a house! Your offer’s been accepted! Clear sailing from here on out, right?
Well, maybe, but you should know what comes next.
As part of your offer you will submit a deposit, called “earnest money” (I did a video on that – check out my YouTube channel if you’re interested.) It’s basically putting some skin into the game so that you have some incentive to adhere to the terms of the contract and perform the duties that you are committed to on the schedule that you’ve agreed to.
You need to meet the deadlines and SO DOES THE SELLER. If you don’t, there is the potential that the seller keeps your earnest money and the house goes back on the market. If they don’t or the contingencies around inspections, appraisals and loans aren’t satisfied, you can break the contract and have your earnest money refunded.
Inspection and Appraisal
Well, as part of the purchase agreement you’ll negotiate some terms, like an inspection, the fact that the your financing depends on the home appraising for the amount you’ve agreed to pay, that you can have your financing approved and ready to go by a certain point in the process.
If you decide that you are, or the seller is, willing to fix whatever is discovered in the inspection, or if you can work out a credit to the price to compensate for the issues (and there are ALWAYS some issues!), the process keeps moving – if not, you can ask for a refund of your earnest money and look for something else.
At the same time, the lender is completing your loan approval. You’ll want to be very responsive to your lender as they request documents etc, because missing a funding deadline can either delay closing or put you in breach of your contract enabling the seller to keep your earnest money and sell to someone else.
As a part of obtaining financing the lender will also order an appraisal of the home. The bank wants to know that the collateral on their loan (the home) is worth what they are lending you and they will be able to sell it and recoup their money if you default for some reason.
If the home does not appraise for the amount that you’re borrowing, a few things can happen. You can renegotiate the price downward to make up for the difference, you can come up with the cash to make up the difference, or you can walk away if the financing contingency is not met and specified in the contract.
On the flip side, homes have been known to appraise for MORE than you’ve agreed to – in this case it’s like you’ve been given a prize because it’s effectively instant equity in the home that you didn’t have to wait or pay for. Yay!
While your lender is working on your loan, you’re having your inspections done and the sellers are making their repairs, the title company is doing a search to make sure that the title is clean and there are no other claims on the home so that you can take possession at closing. When you get to the closing table you will be encouraged to buy title insurance, and that is a very good idea! Should something come up in the future, you’ll be protected.
Now it’s getting real!
The night before or the morning of closing, you will go to the home and take a walk though. You’re looking at the condition of the home to make sure that everything you expect to see there is present and in the right condition, that the home looks the way it should and that when you sign the papers and the home becomes yours that the house is the way it should be.
Your lender will let you know to the penny what you need to be prepared to bring to the closing table financially. They will also tell you how that money will be transferred – often it is simply a wire transfer from the bank.
You’ll sign a lot of loan documents that reaffirm the interest rate, dollar amount, how much the loan will cost you over the term, how long the term is, when payments are due etc etc. And, if you are in MN, you will leave with a set of keys to your home because you take possession immediately unless you’ve agreed to another arrangement.
If you will be living in the house, do NOT forget to file for your homestead exemption!! This is a big discount on your property taxes because you’re occupying the house. You’ll get this info at the closing table, but make sure you put it on the top of the pile so that you don’t forget.
And now you own a home! Congratulations!