Now that the house or investment property is under contract, the lender will be asking for all of the documents necessary to satisfy their underwriters. This will be a good time to practice patience as lenders ask for things that can seem tedious, nit-picky, and seemingly unnecessary. Underwriters are paid to cover every detail to comply with the many laws governing the lending of money, so take a deep breath and get them the paperwork they ask for and you'll get the satisfying words "clear to close" from them.
While the bank is asking for your financial life history, your will have time to inspect the property. A property is made up of many systems and home inspectors are trained to look at all of these systems and identify areas that could need to be repaired or replaced. This doesn't mean that the seller should be responsible for the repairs. If you find items that come-up during an inspection that you feel need to be repaired prior to purchasing, these can be written into a document called the inspection objection. The seller will then have the opportunity to present a resolution to the items listed in the objection. Should the seller refuse to repair any or all of the items listed you, as the buyer have the option to either terminate the contract or withdraw the objection. The seller however, does not have the right to terminate the contract based on the objection, just the right to refuse.
Once you've inspected the property and resolved any issues that arose during that process the lender will be ready to order the appraisal for the property. Since the real estate crash of 2008 the Federal Government has placed restrictions on the appraisal process to prevent appraisers from being influenced by brokers and lenders to suit their personal interests. These regulations limit a REALTOR's ability to influence the appraised value. Depending on the availability of an appraiser in your area, they can take between one to three weeks to complete. Once complete and the property appraises, you'll be one step closer to closing. If it doesn't appraise, then you will have another opportunity to back-out of the contract. At this point you can begin a negotiation with the seller to reduce the purchase price of the home or figure out how to come up with the additional cash needed to close. The lender will have loan to value ratio restrictions. For example they will only lend 80% of the appraised value. So if your purchase price is $120,000, and the appraisal comes in at $100,000. You were planning to pay 20% down on 120,000 or 28,800. Now that the appraisal came in at 100,000 you'll have to pay 20% of 100,000 or 20,000 and the difference between the appraised value and he purchase price, an additional 20,000. So 40,000 instead of 28,800; a significant difference.
This is a good time to start packing if you haven't already, especially if you have a short contract to close timeline.
After the appraisal is complete or resolved, the settlement company or title company may contact you to get documents necessary to satisfy title insurance requirements (to be covered in a separate post). They will be ordering a pay-off if there is an existing loan and preparing the final settlement documents. The final settlement usually will be ready three days prior to closing. The settlement statement will detail every expense of the sale, which typically includes lenders fees, title fees, recording fees, closing services fees, pro-rated utilities/taxes, water transfer fees, and credits due to concessions. The lender must ensure that the buyer receives the closing disclosure (essentially the lenders portion of the settlement statement) no later than three business days before the closing.according to the Truth in Lending RESPA Integrated Disclosure Rule (TRID 11/2013)..
Once the numbers have been provided, arrange with your bank, lender, and title company how you will bring funds to the closing. This is typically in the form of a cashiers check, but can sometimes be provided with a wire transfer.
A day before or the day of closing you'll have a contractual right to have a final walk-through of the home to make sure that the refrigerator that was included in the contract didn't accidentally get moved by the movers, or that the floor didn't cave in.
Closing often takes place at the title company, but can be arranged at a different location if all parties agree. You will need to bring the funds, and your drivers license. All buyers who are listed on title or the contract will need to be present unless otherwise arranged through power of attorney, advanced signing, or mail-out to out of town sellers/buyers.
After signing the mountains of documents the property will be yours. Don't forget to pick-up keys.