What First Time Buyers Need to Know for the Contract, Application and Closing Process

What First Time Buyers Need to Know for the Contract, Application and Closing Process

Identifying a Property

With pre-approval in hand, you reviewed properties on-line, then in person and you eventually found a property that fits your needs, most of your wants and is in your price range.  When selecting a home, remember to factor in other home expenses such as the annual real estate taxes and any monthly homeowner’s association (HOA) dues.  These expenses, along with any immediate need to replace major home components, can create a large financial burden and should always be evaluated when determining long term affordability of the home purchase.

Making an Offer and Negotiating 

Once you have selected a home and want to make an offer, you and your real estate agent will work together to make an initial offer.  Included in this offer are terms like how much you are willing to pay, when you want to close, how much of a good faith deposit you can make (earnest money) and the amount and type of your mortgage loan.  When making an offer, a good real estate agent will know how much homes are selling for in a specific market and how much you should be willing to pay if you want your offer to be taken seriously.  Remember sellers are people too and can easily be offended if they feel you are providing a “low-ball” offer.

Contract Acceptance 

Almost every real estate contract has some back and forth between buyer and seller.  These negotiations are typically handled by the real estate agents for each side as they communicate with their clients.  Once the price, closing date, mortgage terms and other items are agreed upon, the seller will accept the offer and sign the contract making it an executed contract.

Home Inspection and Attorney Review 

Real estate contracts usually provide the opportunity for an attorney review and a home inspection.  These are two crucial pieces to the sales contract that happen after it has been executed by both buyer and seller.  In the greater Chicago market, the attorney review and home inspection typically must be completed within five business days of acceptance.  The attorney review will protect the buyer from items that may create additional liability or exposure while the home inspection provides an evaluation of the major components of the home (heating, cooling, electrical, roof, windows, etc.).

Terms and Obligations of Real Estate Contract 

It is important to pay attention to the terms of the purchase agreement as not meeting them could constitute a default and possible termination of the contract.  There are several action items and dates that must be met regarding your mortgage application.  The application date, intent to proceed date and mortgage approval dates are all tracked as part of the buyer’s contractual obligations under the terms of the real estate contract.

Making Official Loan Application 

As required by both the lender and the terms of your contract, you need to make official loan application to actually get approved for your loan.  This will require the lender to send you application documents plus an official Loan Estimate.  In addition, you will be required to pay an application deposit for the appraisal and credit report and you will need to provide some updated financial documents.  Once your inspection has passed, you will want to ensure that the appraisal is ordered ASAP.

Loan Approval, Insurance and Closing 

Once your application documents are signed, all financial documents are collected and the appraisal is received, your loan will be submitted to underwriting for approval.  Usually, underwriting will approve the loan with some conditions such as proof your earnest money has cleared your account and perhaps and updated paystub or bank statement.  Once all of those conditions are cleared your loan is then considered “clear to close”.

Prior to closing, you will need to obtain homeowner’s insurance for your new home, and if your down payment is less than 20%, your lender will need to obtain mortgage insurance.  If you are buying a condo, your lender will also need to confirm that the condo’s master insurance policy is in place and current for the building and common elements.

Your final cash to close figure should be ready a day or two prior to closing.  If the cash to close figure exceeds $50,000, you will have to wire funds to the title company.  If the figure is under $50,000, the title company may allow you to bring a cashier’s check.  Always check with the title company and your lender regarding funds for closing.

At closing, you will sign all closing documents such as the closing disclosure, mortgage and note.  Once all documents are signed and closing conditions are satisfied, the title company will disburse all funds and you walk away with your keys as a happy new homeowner.

The home purchase and home financing processes are still very complicated, involved and labor intensive.  While you can find a lot of information online, you should always pick up the phone and talk to an expert.  Sometimes a 10-minute call can be worth hours of online research. Contact United Home Loans at 708-531-8388 for expert advice specific to your situation.