Buying a Home: Close and Become a Homeowner
The closing process consists of reviewing and signing your loan documents (if you’re taking out a mortgage) and signing the contract for the purchase of your home. This process is not as simple as it sounds. You’ll be relying on multiple parties to do their jobs correctly and promptly, and the only part of the process you can control is the part that you’re responsible for. This section will discuss that process.
The Next Step for Your Loan
At this point, you’ll need to review and understand the HUD-1 form (“HUD” stands for the US Department of Housing and Urban Development, which helps to regulate the housing industry). Earlier in your loan application process, you should have received a form called a good faith estimate that outlined the closing costs you’ll be responsible for paying.
The HUD-1 is similar to the good faith estimate, except that with its proximity to your closing date, the numbers should be nearly accurate. The HUD-1, however, is still considered an estimate. Because of this, one of the line items on the form will be an extra couple hundred dollars that you pay at closing in case any of the estimates turn out to be low. This process ensures that there’s enough money available to finalize the transaction without delay. In theory, the HUD-1 estimates should be accurate and most of the cushion money should be returned to you after closing, along with a closing statement detailing the exact actual costs incurred for each item on the HUD-1 form.
The fees you’ll see on the good faith estimate, HUD-1 form and closing statement will include items such as these:
– loan origination fee
– points (if you’re paying any)
– seller credit (if any), such as a credit toward closing costs or future repairs
– title report fee
– escrow fee
Review the HUD-1 carefully to make sure it closely matches the good faith estimate you were given, the amounts are correct, and you aren’t being charged any unreasonably high fees or junk fees. If anything is wrong, you’ll need to get it remedied ASAP, but keep in mind that the time involved in correcting things might delay your closing and a delayed closing can have penalties. In short, you might get stuck paying for something you don’t understand or think you shouldn’t be paying for just to finalize the deal on schedule. If this expense isn’t more than a couple hundred dollars, don’t worry about it; it won’t matter in the long run.
Sign the Loan Paperwork and Property Transfer Documents
The loan and property transfer documents could very well be 100 pages long, which means they'll take time to review. The notary present at the signing might pressure you to get through them quickly, but ignore this. These are some of the most important documents you’ll ever sign in your life. You need to review them carefully to make sure there are no mistakes or unusual clauses. Make sure your loan officer is either present or readily available by phone to answer any questions you may have. If you have a real estate attorney, you should also have your attorney or a representative from your attorney’s office present.
After you sign all the documents, the escrow company will execute the closing instructions and your loan funds will be distributed to the seller. The escrow company will also forward to the appropriate local government agency, such as the country recorder, the documents transferring the home’s ownership, if you're buying a home, townhouse or condo. That agency will ensure that the title formally passes from the seller to you, the buyer. After the paperwork has been processed, you will receive the deed to your property or the shares of your co-op.
Once the documents have been signed and the funds have exchanged hands at the closing, you’ll finally get the keys. The first thing you should do is change the locks – who knows how many copies of that key are floating around?
Say Goodbye to Your Rental
When should you give notice at the place you’re renting? To be safe, wait until you have the keys to your new home. Then consider how long it will it take you to move. Are there any repairs or remodels that you need or want to complete before moving in? It will be easier to do them in an empty house, if you can afford the extra month’s rent.
It’s not a good idea to give notice before the purchase transaction is complete, because there are so many things that can go wrong during the process and cause the sale to fail. You don’t want to end up having to find a new place to live on just a few days’ notice. It’s impossible to buy a house that quickly, so you’ll have to rent a new place or even stay in a hotel in the meantime. And because rent is due a month in advance and mortgage payments are made after the month you’re paying for (i.e., your December 1 mortgage payment covers the month of November), you can probably afford to go that month between giving notice and moving in without having to make two housing payments in the same month. You will technically be paying double for housing that month, but it won’t feel like it from a cash-flow perspective.
Fix any significant maintenance problems, such as a leaky roof, right away. If any problems were revealed during the home inspection that the seller didn’t fix, repair them immediately. Now that the house is yours, these problems are your problems and you don’t want them to get any worse.
Keep Cash on Hand
You’ll probably have a lot less cash after closing because of what you’ve forked over for the down payment and closing costs. On top of that, you might have a higher monthly housing payment than you did when you were renting and new expenses associated with home ownership. However, it’s more important than ever to keep what cash you have left available and to rebuild your cash savings. One day you’ll need a new roof, air conditioner or furnace, and you might have to pay for other repairs along the way, from broken windows to clogged drains to tree trimming.
It’s also important to keep cash on hand in case you lose your job or fall on some other hardship so that you can keep paying your mortgage. Not losing your house and keeping it in good condition should be priorities if you want to protect your investment and your net worth. Unlike a rental unit, your home is more than just a place to live – it can be a significant source of future wealth.Buying a Home: Conclusion