YOU DID IT! In what is perhaps the pinnacle of “adulting,” you put in an offer to buy a house and that offer was accepted. Now you’re under contract.
On average, closing on a home takes 14 to 30 days. There are aspects of the closing process that the buyer can’t control, such as waiting on the bank’s appraisal or trying to coordinate all of the professionals necessary for a thorough inspection of the property, but when the ball is in your court, there are plenty of steps you can take to speed things up. Georgia Harrington, senior loan officer, and Antoinette Theriot-Heim, a loan officer associate at the Metairie location of NOLA Lending, explain the things a buyer needs to understand and do during the closing process that will help get the keys to your new home in your hands in no time.
The simplest thing a borrower can do to is answer the phone.
“Respond quickly,” Harrington says. “From the very get-go, after we take a loan application and we’ve got a prequalification, we start sending the borrower communications on what we need and how they can get it to us. The quicker they remit, the quicker we can get to closing. … Be on top of things, like knowing where to get your documents such as W-2s and bank statements.”
Understanding the monthly payment also is crucial. The payment can be much more than just a lump sum paid to the bank as an installment on the mortgage. It often includes funds for an escrow account, from which you’ll pay your annual property taxes and homeowner’s and flood insurance costs. You can opt to pay these on your own, but lenders may require monthly escrow contributions, because it guarantees the money will be available to pay those fees and that the bank will not have to step in. Monthly payments also may include private mortgage insurance (PMI), which is required for conventional loans made with less than a 20 percent down payment.
Harrington stresses that buyers also need to understand how much monthly payment they can really afford before they get to the closing table. Understanding your income is critical here. Are you self-employed, or an hourly or salaried employee? Do you rely on commissions, bonuses or overtime to supplement your income? If your income fluctuates wildly, be wary. Just because the bank approves you for a $300,000 loan doesn’t mean you should take it. Consider the months when finances are tight — you may find yourself in a pinch.
“No one in the real estate industry wants you to be house poor,” Theriot-Heim says.
Buyers are required to prove the ability to repay the home loan, and banks have to verify the chain of income and establish that the funds necessary for the purchase (down payment, closing costs, escrow payments, etc.) are ready for withdrawal prior to final approval. Another step buyers can take to facilitate closing is making sure those funds are in the right place at the right time. The money must be in the bank — lenders won’t accept cash, and there needs to be a paper trail for unusual, large deposits such as gift funds or money borrowed from a 401(k).
Don’t change anything about your financial picture during the closing process, especially your credit, Theriot-Heim advises. “Don’t buy furniture for your home before you have the home,” she says. “Don’t go buy a car.”
“Don’t loan money to your best friend, because when she gives it back, (the lender) won’t know where it came from and you’ll have to establish a paper trail for those funds,” Harrington adds.
As soon as a buyer’s offer is accepted, he or she should shop for property and flood insurances and choose a title company. The real estate agent and lender may have some suggestions, but don’t be afraid to shop around and compare fees. The buyer also should get the inspection process going, which Theriot-Heim says is “the biggest hiccup.”
This period typically lasts 10 days, during which the buyer, the agent and any professionals (such as a plumber or electrician) can inspect the property for deficiencies. If any are found, the buyer can renegotiate the contract with the seller or walk away completely and receive a refund of any earnest funds (a deposit to show you are serious about the house) already paid. The lender can’t order an appraisal until after the inspection is complete, and the appraisal period can take anywhere from five to 21 days or longer, depending on the type of loan and the lender. If you drag your feet on the inspection or the contract renegotiation, it can drastically extend the closing process.
The one thing Theriot-Heim and Harrington say buyers shouldn’t rush is shopping for the home in the first place.
“Be comfortable with the price, the neighborhood, the house itself, everything,” Harrington says.
“Buying a house is not like buying a car,” Theriot-Heim adds. “A car is a moveable object — the car dealership can come and put a boot on your car and tow it back. The bank doesn’t want your house back.”