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Use This Checklist to Be Prepared for the Closing
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Buying a Home - Closing Activities Checklist
The final days and weeks before closing
can be a stressful period for both buyer and seller. For example,
you may have second thoughts about the prospect of taking on such
a large debt. Or you may worry that something will happen to prevent
the sale -- and indeed the house is not yours until you close on
it. The signed sales contract and the signed loan commitment
letter obligate both you and the seller to complete the
transaction. In fact, if you fail to do so, not only will you forfeit
your deposit, but you may also find yourself in a lawsuit.
To ease the way, the following checklist looks at a variety of activities
that you need to take care of prior to closing. The checklist reviews
what needs to happen in the final weeks before closing -- such as
the title search,
a survey of the property,
and your final walk-through inspection.
Review the Commitment Letter
Be sure you understand any conditions of the loan offer that are
stated in the lender's commitment letter. Check to see if all conditions
have been met before closing. For example, if the home you are buying
has been found to be in violation of a building code or zoning regulations,
the lender may specify that those problems must be corrected before
the closing. If the seller has agreed to make repairs required by
the lender, you need to make sure the work is finished and done
properly before closing.
Set
the Closing Date
An estimated closing date is normally specified in the sales contract.
After your mortgage loan is approved and the commitment letter is
accepted, a firm closing date will be set. Usually the real estate
sales professional, the lender, and the closing agent coordinate
a date with you. You need to be sure that closing takes place before
the lender's commitment expires and while the interest rate lock-in
period, if there is one, remains valid. You should request a statement
confirming the date, place, and time, and a list of items you need
to bring to the closing meeting from your closing agent.
Select
an Attorney
Because the loan closing is a legal transaction, you may want to
hire a real estate attorney early in the application process. Your
attorney will review your sales contract before you sign it and
represent you at closing. Your personal attorney's fee is not part
of your actual closing costs, so you will need to budget for this
expense separately.
If you seek a personal attorney, think about
questions such as these:
- Does the attorney have substantial experience in real estate
transactions?
- What is the attorney’s charge for reading sales contracts
or other documents and giving advice about them?
- What is the attorney’s charge for being present at closing?
Note: In many states, such as California,
most real estate transactions are closed without the assistance
of attorneys.
Select
a Closing Agent
You'll need a closing or “settlement” agent to coordinate
closing activities, such as preparing and recording the closing
documents and disbursing funds. The types of services provided will
depend on the closing agent you hire. Usually the closing is conducted
by title companies, escrow
companies, or attorneys, but it can be held at the lender’s
or real estate professional’s office.
You may be able to save some money by shopping for a
closing agent. Your real estate sales professional and
lender should be able to give you some recommendations.
Or, you can get referrals from a recent home buyer.
Secure
Title Services
You need to make sure that a title search on the property
has been made and that you have obtained title
insurance before the closing meeting.
A title search is required to prevent fraudulent
sales. Lenders want to be sure that the seller is indeed the owner
of the property. The title search also attempts to uncover any liens
(legal claims against a property on the title). Any claims against
the property must be paid before (or often at) closing.
Title insurance is required as further assurance
that the seller is giving you a “marketable title.” A
lender’s policy protects the lender in the event a flaw
in the title is detected after the property has been purchased.
An owner’s policy protects you. You should purchase
both types of policies. Obtaining a combined lender’s/owner’s
policy will save you some money. You may also get a price break
if the title company that previously
insured the title is willing to "reissue" the policy.
The buyer typically pays for the title search and both
types of title insurance. Your closing agent will
coordinate both title services before the closing
meeting.
Order
a Property Survey
The lender may require a survey,
or plot plan, of the property. This is done to confirm that the
property’s boundaries are as described in the sales contract.
Usually the buyer pays for the survey and the lender orders it.
You may be able to save some money by requesting an “update”
from a surveyor who has surveyed the property previously.
Order
a Termite Inspection
In many locations, homes must be inspected for termites before they
can be sold. You need a certificate from a termite inspection firm
that states that the property is free of both visible termite infestation
and termite damage. Usually the seller pays for this and the seller's
real estate sales professional orders the termite inspection. But
you will want to make sure that the original certificate is delivered
to your lender at least three days before closing. This will give
the lender time to review it and address any problems.
Obtain
Homeowner's Insurance
Your lender will require that you purchase homeowner's
or “hazard”
insurance, which protects you and the lender from loss in
the event the house is damaged or destroyed. Coverage must be equal
to at least the replacement costs of the property. Most home buyers
purchase a homeowner’s package of insurance that includes personal
liability insurance (in case someone is injured on your property),
personal property
coverage (which covers loss and damage to personal property due
to theft and other events), and dwelling coverage (which protects
the actual house against fire, theft, weather damage, and other
hazards). If you live near a body of water, you may also want to
get flood insurance as part of your homeowner’s protection.
You will want to get quotes from several insurance companies and
compare rates on the same types and amounts of coverage.
Lenders typically want the first year’s premium
to be paid at or before closing. If your down payment is less than
20 percent, your lender may add the insurance cost to your monthly
mortgage payments and keep this portion of your payments in an escrow
account (or reserve). Then, the lender pays the insurance
bill when it is due each year.
Inquire
about Mortgage Insurance
Mortgage
Insurance (MI) helps protect the lender in case of a foreclosure
(the legal process that a lender may use to take ownership of your
home if you fail to make your monthly payments). Typically, the
lender will require this insurance if your down
payment is less than 20 percent of the purchase price of
the property.
The lender orders MI from a mortgage insurance company
after your loan is approved. You will not need to apply for insurance
yourself. You may be required to pay the full first year's premium
at closing. Renewal premiums will be added to the monthly mortgage
payments you make to your lender after closing and will be put into
an escrow account.
Many MI companies offer programs that require no upfront payment
at closing, but they may require a slightly higher monthly payment.
Obtain
Well and Septic Certifications
If your property is not served by public utilities, you will need
local government certification of the private water source and sanitary
sewer facility before closing. Usually the county government performs
the certification.
Inquire
about a Certificate of Occupancy
If you are buying a new house, a certificate of occupancy needs
to be provided at closing. This certificate is legally required
before you move into a newly constructed home. The builder obtains
the certificate, usually from the city or county. An inspection
may also be required to see if the property meets local building
codes.
Go
on the Final Walk-Through Inspection
Your sales contract should have included a clause allowing you to
examine the property within 24 hours before closing. The real estate
sales professional usually will accompany you on the walk-through.
This is your opportunity to make sure that the seller has vacated
the house and left behind whatever property was agreed upon. You
will want to check that all lights, appliances, and plumbing fixtures
are in working order. You will also want to make sure that all conditions
of the sales contract have been met. If you observe major problems,
you have the right to delay the closing until they are corrected,
or you could ask that the monies be placed in an escrow
account at closing to cover major repairs to be completed.
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