Picture this!  You have found a home you want to buy.  You have made an offer and gotten it accepted by the sellers.  You got through your first home inspection and negotiated a repair amendment with the sellers.  You have made it through all the stress and anxiety.  Now you can relax and wait for closing on your first home.  Wait!  Is this true?  As much as we would like to think it is smooth sailing to closing after the option period, there are some things that you need to consider in the finance stage of your home purchase.   

This post is the next one in a series of frequent questions to consider as a first time home buyer.  We take through you some questions and answers that you will help you get through the experience of buying your first home.  Of course, we are also available to help you with buying your first home.  Just contact us when you are ready to take the first step.  Let us show you what Integrity means!  

Here are the frequent questions to consider after you option period when buying your first home.  When done here, make sure to check out the other questions.   

What is a title commitment?  – The title company doing the title work for the purchase of your house will initially send you a document called the title commitment.   This commitment outlines that you will be the one receiving the title insurance policy,  what the title company will cover (and not cover) in their policy and any outstanding liens, encumbrances, defect and burdens associated with the property.  These outstanding items will have to be cleared up before a title insurance policy is issued at closing.  

How do I read the title commitment?  – Title commitments can be intimidating for the amount of text utilizing rarely used language that many of us have to look up online to understand.  Because of this, there are plenty of guides (like this one) that explain how to read a title commitment.  Here is a quick summary for you to start.  The commitment is made up of four schedules(A,B,C,D), with each schedule serving a different role.  Schedule A  outlines the actual facts of the title policy including date of policy, the policy amount, property legal description and the parties involved in the transaction.  Schedule B details the exceptions to the policy, including standard ones like deed restrictions, standby fees and taxes/assessments.    There will also be exceptions in Schedule B outlining items specific to the property like build lines and easements.   Schedule C is a laundry list of items the title company will have to remove before they will issue a policy.  For example, the lien of the mortgage owed on the property.  Items in Schedule C do not appear in the policy since they are removed before the policy is issued.   Schedule D is the bill for the title policy and the name parties on the policy.   It is important to note at this point that you will have a policy for you as a the owner and the lender will also have a policy for the mortgage amount, which is all reflected in Schedule A of the commitment.                                                

What if there is an exception to the title that I don’t like? – From time to time, you will see some exceptions that you do not like (like you can’t have a home business in the property as dictated by a deed restriction).  According to the one to four family contract that all parties signed, the buyer does have a certain number of days (as decided by the two parties) to protest exceptions.   If you do not protest within the time period allocated, you will lose your right to protest.  If you do protest an exception, the seller has 15 days to erase these exceptions or the contract is terminated with all earnest funds being returned back to the buyer.   I would say that if it ever comes to this point in the process, you will need to contact an attorney to ensure your rights are protected as the legal process unfolds.

What is the title insurance policy? – I will leave this one up to the experts to define for you (and give you break from my musings).    According to this article, the title insurance policy is “is an insurance policy that covers the loss of ownership interest in a property due to legal defects and is required if the property is under mortgage. The most common type of title insurance is a lender’s title insurance, which is paid for by the borrower but protects only the lender.”  Like it has already been written, the owner does also gain protection from title defects in the policy.   Bottom line:  This title insurance protects you against claims against the title from other parties.   It is something I highly recommend you purchase. 

Who pays for the title policy again?  Who much will it cost? – Traditionally, the seller pays for the title policy, although sometimes buyers will offer to pay for it if they want to make their offer more attractive.  Cost is based on the sales price of the property.  You can go here to get an estimate.   

What can I expect from the lender during the finance phase? – Lenders differ in their procedures and policies, but all of them will most likely ask you to provide additional documentation about something in your life,  or financial picture that needs to be cleared up.    For example, if you have a credit card payment, or charge that seems different from previous months, they will ask you to explain the reason.  You might get asked to provide paychecks and bank statements again so they can verify you have not spent all your money or received a large deposit that needs to be explained.   It is always best to just swallow the feeling of intrusion you will get while applying for a mortgage.  It is tedious and time consuming but you are getting a house in return so a little pain now is worth a lot in the future.  

What is a “spending vacation”?  –  Basically, it is what buyers should do once they first apply for a mortgage.  It means the buyer will do nothing to hurt their chances of getting a good interest rage (or the mortgage at all).  Here are some rules to follow, and it is best you follow every one if you want to get that house.  

1. Don’t get any more credit cards. Don’t even apply for them.  

2. Do keep all credit cards active.

3. Don’t get crazy with purchases and max out your credit cards.

4. Do keep your same employer

5. Don’t try to consolidate your debt.

6. Do take care of any collections, judgments and/or tax liens

7. Do pay all your bills on time.

8. Don’t make any large deposits into your accounts!  

What is an appraisal? – An appraisal is a process to determine the value of a house.  These appraisals are done by certified professionals who follow some strict procedures to determine the property value.  Lenders will use the appraisal to ensure the house is worth at least as much as the sales price, and doesn’t have any major defects not found in the inspection.  Lenders do this to make sure that if the house is ever foreclosed, they will get their mortgage loan amount back from selling the property.  

What happens if the appraisal is lower than the agreed upon sales price? – It is a sad fact that you will often have an appraisal that comes in lower than the sales price.   Appraisals are subjective processes even though they follow a strict rigid process, the ultimate decision on value is more of an art form than an exact science.  If the appraisal does come in low, you need to speak to your lender  about either increasing your cash down payment to cover the difference or have your real estate agent approach the sellers about dropping the sales price to match the appraisal amount.  In most cases i have been involved in, the two parties meet in the middle with the buyers putting some more money down while the seller lowers the price respective to the higher down payment.   

Can I appeal the appraised price? – You can, but I have never heard of anyone actually changing the mind of an appraisal.  The one exception is the lender themselves might ask the appraiser to take a second look at the appraised price, which will often result in a different appraised amount.   

What is the closing? – When all the parties involved in the home purchase (title company, lender, buyer and seller) all agree that the home purchase can move forward.  The buyer and sellers travel to the title company to sign all the paperwork necessary to transfer ownership from the seller to the buyer.  Sellers will usually have much less paperwork to sign as the buyer has to sign a ream of paper concerning the mortgage while the seller does not.  In Texas, the two parties can sign at different times and it usually takes anywhere from 20 minutes (sellers) to an hour (buyers) to get all the paperwork signed.  

Is the closing date written in stone? Can I schedule my closing now so I can take off work? – Here is an insider’s tip to purchasing a house.  The closing date in the contract is fluid and be extended through an contract amendment.    When the delay happens, it can often occur the day of closing so it is almost impossible for the buyer or seller to know the exact date and time closing will occur with any certainty.  I always tell my clients to warn their employers that they have a closing coming up and the need might arise to schedule time off very quickly with little warning.   If that doesn’t work, most title companies can send out a remote notary to you to sign the paperwork at a time that works for you, although this will cost anywhere from $75 to $200. 

What do I need to bring to closing? – Two forms of ID and whatever you owe in a down payment.  Make sure you get the amount before arriving at closing so you can get a cashiers check or money order.  Title companies do not take personal checks or cash for down payments.   You can also wire the funds to the title company (in most cases). 

When do I actually get possession of my house?  – It depends on when you sign the paperwork as the mortgage company has to send the funds to the title company, who will distribute the money to the various parties.  If you sign the paperwork after 5 pm, the funds won’t be wired until the next day.  If you sign the paperwork after 5 pm on Friday, you won’t get possession until the following Monday.   Once it is all said and done, however, you would have completed the process of buying your first home.   

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