It’s always exciting to close a deal. But for first-time home buyers, you’ll need to do a few things before you can move in.
Paperwork is a major part of real estate. This is precisely why a lot of people choose to hire real estate agents as oppose to going solo. Not only can the sheer abundance of documents be overwhelming, but it can leave us confused.
So, because of that, we decided to give you an article explaining the types of documents you’ll need to close on a house. With all that said, let’s dive in.
Documents When Closing Any Kind of Purchase
As with anything in real estate, the types of documents needed vary based on the type of purchase. In this case, here are the following documents needed when closing any kind of purchase (as a buyer).
- Photo ID
This is a standard procedure and you’ll be surprised how often a photo ID is used when closing a sale. A Photo ID comes into play so the signature and information can be compared with the loan documents. To put it short, a photo ID is used to prove your identity.
- Insurance Documents
There are a few insurance certificates you will need to bring to the table with you when closing on the purchase. In all cases where you’ll be taking out a loan to pay for the property, you will need to show a homeowner’s insurance.
Some states require wind insurance, flood insurance, and earthquake insurance or the process won’t go through. In some states, these types of insurance are a must whenever taking out a loan with the lenders.
- Pest Inspection
Some lenders like to be very protected when giving out loans to home buyers. And some lenders ask you to do a pest inspection. With some types of loans, a pest inspection is considered mandatory. But with others, such as VA and FHA loans, the rules are less strict. Regardless, always ask your lenders whether or not they need pest inspection before going to the table.
Loan Documents
There are quite a few loan documents that you’ll have to show when closing on the purchase. The first and foremost is the note.
- The Note
The note is evidence that you’ve indeed taken out a loan with a lender. This document described the terms, means of repayment, and means of collecting the debt. The note is very important as it has everything to do with the purchase of the home.
Since a lender essentially buys the property for you and you’re meant to repay, this document clearly states the agreement between the buyer and the lender.
- The Deed
Homebuyers must find ways to repay their debt to the lenders, otherwise, they will lose the property. And that’s exactly what the deed is. The deed, or you may find it under different names, is a document that you and the lender agree to put the house as collateral for the loan.
This means that if you fail to repay your debt to the lender, the house that you’ve bought will be used as cover. The deed is what gives lenders power over the deal and what makes the transaction a secure one.
- Loan Application, Estimate, and Disclosure
These are three documents put into one bracket and they are the last when it comes to any loan paperwork. The loan application is a form that the lender will give you to take at the closing. This document is essentially everything we’ve so far talked about.
The loan estimate and disclosure is yet another document that gives the seller more information when it comes to the loan transaction. Not only that, but this document clearly states the means of repayment and the monthly estimates.
How Does the Closing Process Go?
Documents are one thing but what about the closing process itself? Well, there are a total of 11 steps of a legal house closing. Let’s explain that.
Opening an Escrow Account
This is a safe means of transferring the money and any documents between both seller and buyer. This account is held by a third party and makes sure that no one gets cheated out of the deal.
Title Search and Insurance
The title search is yet another legal safeguard. It is essentially proof that you’re the owner of the property once everything goes through. If there are any claims on the property, they will need to be resolved before the transaction can go through. The insurance is essentially a means to protect the holder from a financial loss against lies, encumbrances, or title defects.
Hiring an Attorney
This is strictly optional but going with an attorney is always better than going alone.
Negotiating Closing Costs
When closing a deal, do know that everything costs. From hiring an attorney to opening an escrow and even hiring pest control, these costs can spiral into something very expensive.
Home Inspection
A home inspection is done so that experts can confirm the property doesn’t come with any underlying issues. If the experts, or yourself, find anything wrong with the property that you weren’t previously aware of, then you will need to renegotiate with the seller.
Pest Inspection
As mentioned previously, a pest inspection is a must in most states. Thus, getting a pest inspection is oftentimes the next logical step once the home inspection step finishes.
Renegotiations
Once the home and pest inspections finish, then the renegotiation process re-starts. This only occurs if you’ve found anything that you don’t like or feel hasn’t been mentioned before. If you find any issues with the plumbing that you weren’t aware of, then you’re likely going to renegotiate with the seller and have it fixed before closing the deal.
Locking Interest Rates
Locking in the interest rates before the deal goes through is a smart thing to do because of multiple things. For starters, interest rates can be pretty volatile and change over time. Some rates depend on the market while others depend on your current credit score. So locking them is a good way to enjoy a nice repayment without any risky fluctuations.
Removing Contingencies
Whenever you send an official offer for the property, your offer is contingent on five things. Once these five things are all checked out, then you can approve the deal on your end. The important thing to know is that you’re meant to remove these contingencies in writing.
Funding
Not only do you have to put a down payment, but you’re also going to have to deposit additional funds into the shared escrow account. Your lawyer will notify you regarding the amount of money needed to be put in the escrow account and for what purposes.
Last Call
Once everything goes through, you’re meant to do one final inspection and sign the closing paper that transfers the property from the seller to you.
Finishing Thoughts
Closing a deal for a house might sound like a nightmarish experience full of paperwork and papercuts. But the process can be simplified by hiring an attorney. Since an attorney is a professional that understands what needs to be done, they can guide you through the process and make sure everything goes smoothly.