Closing house purchase, between offer and moving in

Once your home offer is accepted, you’ll be almost there. Almost meaning about month or two, depending how fast your lender works. But first things first – home inspection.

I know that paying $400 for a guy just to come and look around doesn’t sound too attractive. Especially if you end up having an inspector that’s all suited up, i.e. if when you first meet him he immediately starts talking about things he won’t be vouching for or won’t be inspecting… well, you’ve likely paid $400 for nothing. As with agent, I really suggest that instead on relying on your friend’s recommendation you rely on scores by hundreds of people. Redfin has pretty nice Open Book of Inspection Services for every city (Chicago linked). Also, they have good Interactive Home Inspection guide. But, if you are already set on hiring professional inspector, you should only focus on one thing: get the inspector which promises that after he is done with inspection, he’ll spend time with you SHOWING you the problems and allowing you to take your own notes.

Nowadays many inspectors prefer to skip this part because it can be time consuming. Instead they take stance of – let me send you written report and everything will be in there. The problem with written reports is that they are not interactive. More often than not they are really just predefined checklist through which inspector goes and puts functional, non-functional or some variation. Dryer needs repairs. Awesome, now what exactly does that mean? Should I spend more money just to know how bad it is? Do I need to completely replace dryer? Those are the type of questions you’ll be asking yourself if you settle for just written report.

Another thing inspection wise that I recommend is testing for Radon. This decision is even harder. Radon self test kits cost something like $13. Sure, you need two (to ensure test was valid), but that doesn’t justify price tag of $150 which is how much most inspectors charge nowadays. For that amount you can easily get digital Radon meter that’ll last you for a full year.

The reason why Radon testing price is so high is that inspectors play on the price tag of Radon mitigation system. Standard system can easily cost over $2000 (when you are purchasing house for hundreds of thousands of $$$, what is two thousand more, right?). So, if you do not test and end up having to mitigate Radon anyway, instead of spending $150 you are now spending $2000. As a consequence, most people play safe and pay for Radon testing. The only advice I can offer is that you take a look at EPA’s map of Radon Zones. From my experience state EPA agencies have more accurate maps and you may wish to search for those. But, if you are in Zone 1 or Zone 2 – you should definitely test. Zone 3 – you can take a gamble, but… you know how they say – better safe than sorry.

Closing the loan

As I’ve said previously, in your Home Offer there should be two deadlines – first deadline is date by which you should secure your loan. If you were ever wondering why purchases of houses take few months, this is where you figure out why. Theoretically, closing the loan is not that complicated:

1. It starts with you signing few documents giving loan issuer authority to start the process
2. After you are done signing, you’ll be paying various fees
3. Your loan issuer will order property appraisal
3. Appraisal will need to confirm that purchase price is not too inflated or deflated
4. After appraisal is successfully completed, you’ll be asked to provide various documents for purposes of closing the loan
5. You’ll need to jump through few hoops, send in new documents, move money to that bank account, etc
6. Finally, you should get notification that you are approved
7. After this all that is left is for your lawyers figure out any outstanding issues and date two dates: final inspection and closing date

Time in which you can do all listed steps can vary greatly. I’m pretty sure that with responsive lender you can close this process under 2 weeks. Then again, it’s possible that with your lender it will take more than 2 months. This is something you need to plan in advance. Before signing off Home Offer, reach out to your lender and ask whether or not he is comfortable with date given as financing deadline. If he is not, put contingency that you get your earnest money back or that deadline is automatically pushed if your lender fails to deliver by the date. If lender is confident he’ll get job done by listed date, still put contingency just in case.

Dealing with lenders can be pretty frustrating, because more often than not you’ll start the process with one person and then when paperwork starts, you’ll be assigned to someone else. And you know how switch from sales guy to tech guy goes – suddenly there is no more yes, yes, sure. Instead you’ve get less than polite emails saying: give me this and give me that. Can I give you this? No, I’ve asked for that, go and get it. This can especially be frustrating when it comes to time sensitive material like bank statements. God forbid you send all the required documents right away and be done. If process tags along for month or so, be sure you’ll be asked to send bunch of documents again.

This is by no means complete list, but expect to be asked to send:
1. Scans of your IDs, driver’s license, passport or green card, all depending on your situation
2. Last two pay-stubs and scans of pay checks (yeah, scan those before depositing)
3. Tax returns and W2s for last two years
4. Bank statements for past two months. If you are going for 20% down payment you need to show you have enough money to close the loan
5. Company letter showing that they are aware of your house purchase and that they support it

As I said, documents may vary. Some lenders may not ask for #5. Some may say – without that we can’t proceed. Just be ready for the roller coaster ride and try to get it over as soon as possible.

My loan is approved! Am I done?

Well, almost. Depending on your situation you could be days or months away from moving in. This is where lawyers are pretty active, going over final details and figuring out closing date (before second deadline listed in Home Offer).

Now, if there were any outstanding contingencies, try to figure them out as soon as possible. If seller took upon himself to remedy Radon issue, that needs to be done before closing date. Especially in case where something was being fixed, be sure to schedule final inspection. Property may have completely changed between you giving Home Offer and now. For all you know maybe it was humid summer and mold started growing.

I’ve had really bad experience of skipping final inspection (because I was unaware of it). When I moved into my new home, radon pipe on the bedroom ceiling greeted me. Good luck sleeping in there. I’ve reached out to my lawyer and 2 days later he replies – well, you signed papers, it’s your problem now.

So, learn from my mistake. Agree on closing date, but set final inspection date a day before it. Tour the property and check if everything is as it was when you gave Home Offer, or if it’s been fixed as agreed. Everybody other than you will be gone tomorrow and there is nothing you’ll be able to do. Until you sign the papers, you have the power to change the things and get others to help fix the problems. That power is gone immediately when you get the keys to the property.

Moving and how it fits into the picture

I plan on writing separate blog post regarding moving as it is complex topic. In the context of closing house purchase, just be aware how it’ll influence you. Especially if you are moving to a new city or state, there are tons of things that need to be done. Those things can keep you occupied and shift your attention from important house purchase decisions. Do not let that happen. Especially if you are moving to new city plan to arrive there at least a day or two before closing date. Do that final inspection and work on any issues that have popped up in the meantime.

Closing house purchase process, closing date

Closing date is an interesting combination of exciting and boring. You lawyer should guide you through signing more than hundred papers. You’ll probably be amazed at how majority of those 2 page documents can be explained in a sentence.

Again, the most important thing – everyone will be gone after the meeting is over. Your agent and your lawyer are not there to help you. Unlike you, everyone else is there to collect their share of money you are providing; so they’ll try to get things over as soon as possible. If you are satisfied with terms and conditions, by all means, do not waste people’s time and let them proceed. But if you are not comfortable with ANYTHING, speak up. If there were problems during your final inspection, postpone closing date. Do not give in to any promises that are not on written down and signed.

Once closing is over – it’ll be you and keys to your new home. Your bank account will probably be quite lighter. You’ll be in for a few decades of mortgage payments.

You better be happy with what you’ve got now.