Contract to Close

Dated: June 23 2022

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Let's Talk Contract to Close

 

Hello everyone, back as promised to bring you all the real estate facts and walk- throughs! Last week we covered how exactly you go about getting under contract and this week I thought it was important to cover what happens after that step! What goes on during a transaction from the time we are under contract to the time you close on your new home, and it becomes yours? Hang around and find out! IF you are new here and you are wondering how in the world you get to THIS point, then check out my other blog HERE , detailing how to find an agent and starting your journey! 

     1.  Your offer got accepted and you are now UNDER CONTRACT!

 Congratulations! This is such a big deal in this current housing market that had to include it as our first bullet. Getting under contract is no easy feat currently and sometimes it takes a few tries, so regardless of how long it took you, be excited! You are one serious step closer to being a homeowner and starting a new chapter. Once you get to this point, the ball gets rolling and a lot of other things must be done and come together before you get to that closing table! 

     2.  Get your to- do list in order

 At this point, both parties to the transaction have a checklist of things we need to complete (AKA satisfying contingencies) before everyone is considered cleared to close on the property. So far, you've signed an offer that was turned into a bound contract and based off that contract, there will be a handful of things needing to be done that have date deadlines. Your agent will be the one that will keep up with the contingencies and what needs to be done when, to help keep you on track and doing what needs to be done. Your agent will also send the bound contract to the title company or attorney that's handling the sale now, so they are able to do a title search and make sure the property can be sold. They will also send it over to your lender as well so they can get everything prepped and moving along on their end. 

So, let's do it! Let's cover the nitty gritty that you should be paying attention to on your to-do list! 

     3.  Lender love

  Now that your lender has the contract and has started to move along, they have probably reached out to you with a handful of documents they need from you to get you a loan approval. A lot of what goes on with the lender is time sensitive to get you to a closing table on time with what is in your contract, so it's huge that you communicate and keep in contact with your lender, as well as getting them the documents they need. This will be a different set of paperwork for everyone but usually includes W2's, paycheck stubs, bank statements, etc. Along the way your lender will have a handful of questions and sometimes more documents that are needed. Lenders don't do this to be annoying, they have a ton of hoops to jump through to get you approved and cleared to close so be patient with them and treat them like gold! 

     4.  Earnest money 

This is a good faith deposit that you, as a buyer, promises the seller up front. In more cases than not, the title company or attorney that was chosen to work your transaction will be the party that holds these funds for the remainder of the contract. Offering up this money shows sellers that you have something to lose as well if something were to go wrong. If the buyer was to breach contract, or do something that is not allowed, then the seller would get to keep these funds if the contract fell through. Usually, the amount given is between $500- $2,000, but a wonderful rule of thumb is that your earnest money amount should be at least 1% of the sales price if possible. Once this money is handed to the appropriate party then this is where it stays until the end of contract. If the seller does not get this money and all parties, make it to closing as promised then buyers usually apply it to their closing costs so it's less cash that they must bring in. 

     5.  Inspection time

A home inspection is a visual assessment of a property to determine the current state of its structure and all the associated mechanics. Think of a home inspection as an annual check-up at the doctor’s office – you want to make sure that everything is working properly and identify any weak points that could become an issue down the line. Any good agent will be sure that you have a list of trusted inspectors and that you know your inspection timeline and are given enough time to make sure any inspections you want done on a property are able to be completed. It's also helpful to know that your home inspection is paid up front when it is completed, not at closing like some other aspects. There's a list of different inspections (pool, septic system, well, etc.) one can get but most stick to the average home inspection that details the property and a pest inspection. You will schedule this the first couple of days that you are under contract so that it gets done sooner than later and depending on how you feel, you and/ or your agent can be present on the day the inspection happens. A certified home inspector is trained to look for specific issues throughout a home and report their professional opinion on your home’s status. As the home buyer, you’ll be able to look over the report and get a clearer picture of future costs and upkeep before making the commitment to closing on a home. Depending on the logistics of your offer, you may or may not be able to negotiate repairs for things that are listed on the report that you find an issue with. Once you receive your home inspection, I recommend going over everything with your agent and discussing any factors you may have an issue with. If this is something that can be repaired or replaced, then your agent will help you come up with a list and then they will present this list to the seller’s side. Once you've sent the proposal to the sellers, then both sides will go back and forth for an allotted number of days to negotiate these repairs. If both parties are not able to come to an agreement, then the contract is terminated, and the buyer receives the earnest money back and the sellers are able to re-list the home for sale. But if both parties can reach an agreement, then the items negotiated to repair or replace are made into amendment of the contract and the sellers have until closing to make sure these repairs have been completed as per the contract. This can be one of the trickier parts to the process and if you have a skilled agent then they will know how to negotiate without losing the deal. There are other ways to meet agreement beyond just having the sellers agree to do the required work, sometimes they can give the buyers an allowance and be done with it. It just depends on the transaction and what everyone needs. 

     6. One word- appraisal

Now that we’ve made it through the inspection period and we’ve negotiated how we are moving forward, if both parties agree then it’s time for your lender to order your home appraisal! A home appraisal is the process of a real estate appraiser determining the fair market value of a property. It can help assure you and your lender that the price you’ve agreed to pay for the property is fair! Appraisals are also often used to determine property taxes, which often makes them a requirement in some places, along with your lender possibly requiring one based on the type of financing you may be using. An appraisal is usually around $5-600 and is paid when ordered through your lender. Once the appraiser determines the value on the home, hopefully if the home was priced right, then it will appraise for the same or close to the asking price. If not, there are a few options…. Buyer can pay the difference, seller can decide to take the lower amount, or both parties can decide to walk away at this point with no repercussions. For the sake of this list, we are going to assume that the asking price was met or exceeded and maybe you get to go into your home ownership with some equity! In the simplest terms, your home's equity is the difference between how much your home is worth and how much you owe on your mortgage, so the money you would walk away with if you decided sell. It’s also important to note that sometimes an appraisal will require some repairs based on the loan type or the shape that the home is in. If this happens, then those repairs must be completed for the lender to fund the mortgage so it’s important that buyer and seller agree on what’s to happen if that occurs. 

 

     7.  Did you say termites?

I hate to be the bearer of bad news but if you are moving to TN or KY even, then you’re going to want to get a WDI inspection. What the heck is this? This is also known as a WDIR, but in easier terms- this is a wood destroying insect report! Termites are very common around our parts and if you are wondering if this report is something you should pay money and time for…. The short answer is yes. Subterranean termites are a real threat in Tennessee--especially in the middle of the state. This is due to moisture and moderate springtime temperatures and those babies thrive in our environment. But this isn’t something that should make you jump up and run away from our area because termites are more common than some people think. In most cases, if you keep a yearly treatment on the property then you shouldn’t run into any issues with infestation and damage. But to get a bit more technical, there’s some loan types that state a buyer must get a wood destroying insect report done to ensure there are not any issues because they are so common in our area. An inspection report will run you around $50-100 and treatment can be anywhere from $500+ depending on how bad the infestation actually is. This inspection is usually done in your inspection window and then based off the report, you and the sellers would negotiate the treatment if one were needed. Again, this isn’t something to stress about, but it is important that you do this, so you are better safe than sorry! 

 

     8. Contingency counting

So, by now, we’ve probably received your appraisal back and at this point in the transaction we are working our way to the end of this long road. By now we’ve usually made it through the thick of the stress and worrying. A lot of times as long as you don’t have anything crazy going on with your loan then this is the time everyone starts to relax a bit and they start getting excited because they feel this is happening for them. Which is so awesome, but friends, sometimes we aren’t done. There’s a lot of complexities that can go into an offer and beyond the inspections, repairs, and appraisals, sometimes there are other items/actions attached to the contract that must be satisfied before closing and these are called contingencies. Some contingencies could include but are not limited to- Seller finding another home, buyer being able to sell their previous property, if there’s land involved sometimes buyers want the option to scope out all the land and approve, etc. Contingencies can really include any special stipulations that buyer or seller want to add and can agree upon. The main point in this is that these stipulations, whatever they may be, must be completed before both parties can close the transaction. 

 

     9.  Insurance is important

It is no secret that your home is likely the biggest purchase you will make, and it is so important that you insure your home. Not only is it the smart, adult decision to make- it’s also required if you are financing the purchase of the property. Lenders will make sure that there is a home insurance policy on the property because life happens and you never know what may happen, and both you and the lender want to be protected in case of any natural disaster or life emergency. You will get different quotes from different agents just as you would for car insurance then you will make your selection and get it over to your lender. Your lender ensures that the insurance amount is added to your mortgage information so your policy can be paid by your mortgage company. Just a reminder, when you pay your mortgage, you are usually paying into your escrow account which pays your property taxes and homeowner’s insurance.

 

   10. Funding requirements and a clear to close

  Oh goodness, what a ride this has been! The average transaction takes around 30- 45 days to close on so by now most people are a bit exhausted and just ready to have the deal done. The biggest part of the end of this is that you understand that when you apply for the loan, you are not yet cleared or guaranteed that loan. A big part of why it takes so many weeks to close a real estate transaction is because your lender is working on your actual loan approval through those weeks and like previously stated, they may ask for clarification on things, more documentation, etc. to get you cleared. “Clear to close” means an underwriter has completely approved your loan documents and that any conditions that were required for the loan to be approved have been met. It also means your lender is ready to confirm your closing date with the title company or attorney and we are getting ready to wrap this baby up!! You usually receive your clear to close sometime in the last two weeks leading up to your estimated closing date. Sometimes it can take until the day of or even a couple of hours prior to closing before you receive the clear to close. Just remember this so you have the correct expectations that it depends on many factors how long it may take. Every person and situation are different! 

 

    11. Finally the Final!

Once we have our clear to close and we have met all the contingencies and promises of the contract then it’s time to do our final walk-through on the property. I always suggest doing this the day of or the day before you are closing so you are seeing the most current version of the home. The purpose of a final walk-through is to make sure the home is still in the same, acceptable condition as when you last saw it, and to take a final look to make sure all repairs were completed, if needed. If this is the case, then the buyers send the sellers a notification stating this and both parties get ready to close on the deal!

 

     12. Finally, closing time! 

When you purchase or refinance a home, the last step in the process is called closing. This is when you finalize all the details of the transaction. You sign documents, get the deed transferred over into your name, etc. A lot goes into this day.

 

I hope this has been helpful and as always, I’d love to hear your thoughts and answer any questions! But even more, I’d love to help you get started on the path to home ownership. It’s a huge step in anyone’s life and I would love the opportunity to educate and guide you! Let’s talk!! Have a good week everyone! 

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Jenn McMillion

My name is Jenn and I am licensed in TN and KY, I'm a REALTOR® living in Clarksville and serving the Fort Campbell area. I'm an Army Veteran that decided to Make Clarksville Home!Serving the resid....

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