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Closing Review

The final days and weeks before closing can be a stressful period for both buyer and seller. For example, you may have second thoughts about the prospect of taking on such a large debt. Or you may worry that something will happen to prevent the sale -- and indeed the house is not yours until you close on it. The signed sales contract and the signed loan commitment letter obligate both you and the seller to complete the transaction. In fact, if you fail to do so, not only will you forfeit your deposit but you may also find yourself in a lawsuit.

This checklist reviews what needs to happen in the final weeks before closing -- such as the title search, a survey of the property, and your final walk-through inspection.

Be sure you understand any conditions of the loan offer that are stated in the lender's commitment letter. Check to see if all conditions have been met before closing. For example, if the home you are buying has been found to be in violation of a building code or zoning regulations, the lender may specify that those problems must be corrected before the closing. If the seller has agreed to make repairs required by the lender, you need to make sure the work is finished and done properly before closing.

An estimated closing date usually is specified in the sales contract. After your mortgage loan is approved and the commitment letter is accepted, a firm closing date needs to be set. Usually the real estate sales professional, the lender, and the closing agent coordinate a date with you. You need to be sure that closing takes place before the lender's commitment expires and while the interest rate lock-in, if there is one, remains valid. You should request from your closing agent a statement confirming the date, place, and time and a list of items you need to bring to the closing meeting.

Because the loan closing is a legal transaction, you may want to hire a real estate attorney early in the application process. Your attorney will review your sales contract before you sign it and represent you at closing. Your personal attorney's fee is not part of your actual closing costs, so you will need to budget for this expense separately. If you seek a personal attorney, ask questions such as these: Does the attorney have substantial experience in real estate transactions? What is the attorney’s charge for reading sales contracts or other documents and giving advice about them? What is the attorney’s charge for being present at closing?

You'll need a closing or "settlement" agent to coordinate closing activities, such as preparing and recording the closing documents and disbursing funds. The types of services provided will depend on the closing agent you hire. Usually the closing is conducted by title companies, escrow companies or attorneys, but it can be held at the lender’s or real estate professional’s office. You may be able to save some money by shopping for a closing agent. Your real estate sales professional and lender should be able to give you some recommendations. Or, you can get referrals from a recent home buyer.

You need to make sure that a title search on the property has been made and that you have obtained title insurance before the closing meeting. A title search is required to prevent fraudulent sales. Lenders want to be sure that the seller is indeed the owner of the property. The title search also attempts to uncover any liens (legal claims against a property on the title). Any claims against the property must be paid before (or often at) closing. Title insurance is required as further assurance that the seller is giving you a "marketable title." A lender’s policy protects the lender in the event a flaw in the title is detected after the property has been bought. The owner’s policy protects you. You should get both types of policies. Obtaining a combined lender’s/owner’s policy will save you some money. You may also get a price break if the title company that previously insured the title will give you a "reissue" policy. The buyer typically pays for the title search and both types of title insurance. Your closing agent will coordinate both title services before the closing meeting.

The lender may require a survey, or plot plan, of the property. This is done to confirm that the property’s boundaries are as described in the sales contract. Usually the buyer pays for the survey and the lender orders it. You may be able to save some money by requesting an "update" from a surveyor who has surveyed the property previously.

Order a termite inspection

In many locations, homes must be inspected for termites before they can be sold. You need a certificate from a termite inspection firm that states that the property is free of both visible termite infestation and termite damage. Usually the seller pays for this and the seller's real estate sales professional orders the termite inspection. But you will want to make sure that the original certificate is delivered to your lender at least three days before closing. This will give the lender time to review it and address any problems.

Your lender will require that you purchase homeowner's or "hazard" insurance, which protects you and the lender from loss in the event the house is damaged or destroyed. Coverage must be equal to at least the replacement costs of the property. Most home buyers purchase a homeowner’s package of insurance that includes personal liability insurance (in case someone is injured on your property), personal property coverage (which covers loss and damage to personal property due to theft and other events), and dwelling coverage (which protects your actual house against fire, theft, weather damage, and other hazards). If you live near a body of water, you may also want to get flood insurance as part of your homeowner’s protection. You will want to get quotes from several insurance companies and compare rates on the same types and amounts of coverage. Lenders typically want the first year’s premium to be paid at or before closing. Your lender may add the insurance cost to your monthly mortgage payments and keep this portion of your payments in an escrow account (or reserve). Then, the lender pays the insurance bill when it is due each year.

Mortgage Insurance (MI) helps protect the lender in case of a foreclosure (the legal process that a lender may use to take ownership of your home if you fail to make your monthly payments). Typically, the lender will require this insurance if your down payment is less than 20 percent of the purchase price of the property. The lender orders MI from a mortgage insurance company after your loan is approved. You will not need to apply for insurance yourself. You may be required to pay the full first year's premium at closing. Renewal premiums will be added to the monthly mortgage payments you make to your lender after closing and will be put into an escrow account. Many MI companies offer programs that require no upfront payment at closing, but they may require a slightly higher monthly payment.

If your property is not served by public utilities, you will need local government certification of the private water source and sanitary sewer facility before closing. Usually the county government performs the certification.

If you are buying a new house, a certificate of occupancy needs to be provided at closing. This certificate is legally required before you move into a newly constructed home. The builder obtains the certificate, usually from the city or county. An inspection may also be required to see if the property meets local building codes.