Preparing for the Closing
Did you know?
The standard closing time-frame from the day you've accepted the contract, to the day you move in, is between 30 to 45 days.
The first 10 days is usually set aside for the buyer to complete a home inspection. During this period, the appraisal is on hold, as well as the ordering of the title insurance policy.
The final days and weeks prior to the closing can be a stressful period for both buyer and seller. You may have second thoughts at the prospect of taking on such a large debt. You may worry that something will happen to prevent the sale. Indeed, the house is not yours until you close on it. But the signed sales contract and the signed loan commitment letter do obligate both you and the seller to complete the transaction. If you fail to go through with the deal, not only will you forfeit your earnest money deposit, you may also find yourself embroiled in a lawsuit.
The good news is, if you have properly prepared yourself for home ownership, as discussed here, the time leading up to the closing can be an exhilarating experience. You can now move forward confidently, completing the necessary steps that will bring you to the day of closing.
Setting the closing date
The closing date is arranged after your loan has been approved by the lender and you accept the commitment letter. Your real estate professional will help you coordinate this date with the seller, your lender, and the closing agent. You need to be sure that the closing date takes place before the lender's commitment on the loan expires as it pertains to the rate lock-in, if there is one. Once the date has been set, you can now make definite moving plans.
Selecting a settlement agent
Closings are variously conducted at lending institutions, title companies, escrow companies, real estate brokerages, or at the attorney for the buyer or seller. You may have some flexibility and may be able to save some money by shopping around for a settlement agent. Ask your real estate professional for some recommendations.
Meeting the conditions of the loan offer
Be sure you understand any conditions of the loan that are stated in the lender's commitment letter. If the home you are buying has been found to be in violation of a building code or zoning regulation, the commitment letter may specify that those problems must be corrected before the closing. If the seller has agreed to make any repairs that are required by the lender, you will want to make sure the work is finished and done properly before the closing.
The lender may require a survey of the property before closing. This is done to confirm that the property's boundaries are correct as described in the Purchase and Sale Agreement. This is another charge that is normally paid by the buyer. The survey, or plot plan, may show that a neighbor's fence extends onto the seller's property, or vice versa. Sometimes more serious violations are uncovered that must be addressed. You may be able to save money by requesting an "update" from a surveyor who has surveyed the property previously.
Securing title services
Before the closing, a title search on the property is required.
Lenders require a title search to make sure the borrower will receive clear title to the property. Lenders want to be sure that the seller is indeed the owner of the property. The title search also attempts to uncover any encumbrances on the title. This includes liens (legal claims against a property) filed by creditors in an attempt to collect unpaid bills, as well as liens filed by the IRS for nonpayment of taxes. Any such claims against the property must be paid by the seller before (or often at) closing. The buyer typically pays for the title search.
As further insurance that the seller is giving the buyer a "marketable title," the lender will require that you obtain title insurance.
There are two types of policies:
- A lender's policy - The lender's policy protects the lender in the event that a flaw in the title is detected after the property has been bought.
- An owner's policy - The owner's policy protects you.
The seller may pay the cost of both, though this item is negotiable in the contract. Obtaining a combined lender's/owner's policy will save you some money. You may also get a price break if the company that previously issued the title will give you a "re-issue" policy.
In many locations, homes are required to be inspected for termites before they can be sold. In Pinellas County, it is certain that a termite inspection should be conducted. Usually the seller pays for this. You will want a certificate from a termite inspection company that states that the property is free of both visible termite infestation and termite damage.
Your commitment letter will require that you purchase homeowner's insurance or hazard insurance, which protects you and the lender from loss in the event that the house is damaged or destroyed by fire or storm. Most home buyers purchase a homeowner's package of insurance that includes:
- Personal liability insurance - protects you in the event that you are sued by someone who is injured on your property or injured by a member of your family, except in an automobile accident
- Coverage against fire, theft, and certain weather-related hazards - various options are available
Keep in mind
By requesting a higher deductible amount (the insurance company pays costs only above the deductible amount), you can significantly reduce your insurance costs. In this way, you pay for minor damage yourself, but have protection against major losses.
You will want to get quotes from several companies as to what types of coverage your homeowner's policy should include and how much coverage you need. Generally the lender will require you to get only minimal coverage up to the "replacement value" of the house.
Be sure that when you compare quotes from different companies that you have been quoted rates for exactly the same types and amounts of coverage. In some cases, it may be advantageous to take over the existing insurance policy held by the seller. Or the lender may recommend a particular policy. You may want to use an insurance company with which you already do business. You can save money by having two or more policies (car insurance and homeowner's insurance) with the same company. And in Florida's changing home insurance market, you would do best to consult with your real estate professional regarding the Citizens Property Insurance Corporation.
Citizens Property Insurance Corporation
In 2002, the Florida Legislature passed a law that combined the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA) and the Florida Windstorm Underwriting Association (FWUA). This resulted in the creation of Citizens Property Insurance Corporation (Citizens), which provides insurance to — and serves the needs of — homeowners in high-risk areas, as well as those homeowners who cannot find coverage in the open, private insurance market.
Lenders typically want the first year's premium of your homeowner's insurance to be paid at or before closing. A lender may insist on adding the subsequent hazard insurance premiums to your monthly mortgage payments in order to ensure that the policy remains in effect for the life of the loan. The lender will then keep this portion of your payment in an escrow account, and will pay the insurance bill on your behalf when it comes due each year. If you are obtaining the insurance on your own, you will need to bring the insurance policy and the paid receipt with you to the closing.
Related Real Estate Topics
Negotiating the Purchase Price
How do you negotiate the purchase price when you do find the right house? Hint: it's really more than about the price.
Contingencies in the Offer
You've made the offer on a home, and now it feels like a tug-of-war. How do you move forward, and how do you get out of a bad deal?
As Closing Day Approaches
In the final weeks before your closing, there will be the title search, the survey of the property, and your final walk-though inspection.
The Day of Closing
The day of closing is finally here. So what you can expect? Here is an explanation of the documents and the closing costs you may encounter.
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