Other Buyer Responsibilities
Wrapping things Up
Alabama Home Closing Process
The Steps to Buying Your Northern Alabama Home!
By Lisa Montijo
Unless you already know you can borrow the money to purchase the home you are searching for, you may find yourself disappointed. In order to close on a home, you must know exactly how much you can afford to borrow. That way your search will be focused realistically.
As your Realtor, I will help you connect with a mortgage loan originator. You will learn vital information for closing a real estate deal.
- How much money you need to have on hand to close
- What types of loans you qualify for based on your earnings and credit score
- How large a loan you qualify for based on your earnings and credit score
- What your mortgage payments will be
This information will be used by the lender to provide a good faith estimate as required by the Real Estate Settlement Procedures Act (RESPA). This estimate will include an itemized list of fees and costs associated with your loan and should be provided within three business days of applying for a loan.
Once you submit your loan application, the lender will do three things during the closing process.
Qualify you as a borrower by evaluating your credit, income and debt.
They will use any number of reports, including a loan application which you and any co-borrower will complete and provide to the lender. You, along with any co-borrower will be required to sign the loan application again at closing further stating the information is still correct and accurate on the day of closing (i.e. probably not a good idea to buy the Mercedes until after you close).
Although an initial credit report was probably accessed to secure your good faith estimate, the lender will obtain a composite report extracted from 2 credit reporting agencies.
Qualify the property.
The loan company will ask for an appraisal of the house. This is one of those expenses you need to have money on hand for in order to close.
The appraiser is a disinterested professional who has special training for determining what a home is really worth. The value of the home must be equal to or greater than the price you are seeking to borrow. If it isn’t, the bank won’t lend you the money.
The appraiser often also notes repairs that the bank would expect to be completed before it approves a loan to close the deal. If this is the case, and the sale proceeded, a second appraisal to confirm that the repairs have been performed properly will be ordered.
In most purchase contracts, there is usually a paragraph that specifies what actions the buyer and seller will take if the appraisal is less than the contract price. This step is so often a “show stopper” it is usually one of the first things a buyer needs to know.
Qualify the title.
The loan company will confirm that the seller has clear title to the property you want to purchase. This process involves the lender’s attorney of choice. You or the seller pays for this service, often also called Mortgage Title Insurance. Regardless of who pays for qualifying the title, you should plan on paying for title insurance. It will protect you if a unexpected claim arises against the property.
The bank says, “Yes, we’ll lend you the money.” Should you just sign the papers? Not before you protect yourself with a Home Inspection. There are many things an Appraiser will overlook. Their training is geared toward evaluating the obvious.
A home inspector is trained to identify deeper problems in a home—electrical issues, foundation issues, signs of dry rot, etc. Because Alabama is a “caveat emptor” or “buyer beware” state, if you don’t invest in a home inspection, you will need to live with any repairs, and you will have no recourse.
While the seller and/or seller’s agent is required to disclose conditions that constitute a health or safety threat to you, they are only accountable for what they know. That home inspection can uncover things the homeowner isn’t aware of. Just be sure that you require the seller to give you a “Property Disclosure” before you have the home inspector come in.
The mortgage company may ask for additional inspections.
- Survey – While generally no longer required, getting a copy of the most recent survey confirms the dimensions of the property. If you don’t pay for a new survey, you may be required to sign a statement relieving the lending company and title company of any future liability.
- Termite Inspection – A wood infestation report is often requested by the mortgage lender. If active termites or other wood destroying organisms are discovered, treatment and proof of structural soundness may be required. In most cases, an authorized pest company will conduct a visual inspection of accessible areas, so an inspection isn’t guaranteed protection against purchasing a home that has active termites. The report IS NOT a “termite bond.” So if this is a concern for you, you’ll want to investigate the cost and benefits of obtaining a “termite bond” if one is not transferred with the property.
- Liens – Before closing, the mortgage company has to ensure that all lien payments which are recorded against the property have been paid, or will be paid as part of the closing process. The seller needs to provide the correct mortgage information so the lender’s closing attorney gets the correct payoff information from the mortgage company, if there is one.
You will have to arrange for property insurance. The insurance industry keeps records (similar to your credit file) on properties showing all recent claims. The owner of the property can access this report called the CLUE report along with the insurance company you are using to provide home owners insurance.
Once you and the lender have performed all these steps, you will most likely find yourself in the lender’s Attorney’s office. You and the seller may both be present, but not necessarily.
Be sure you have proof of your identity such as a current state recognized Photo ID – a driver’s license or passport for example. Proof of identity is required to close.
There are many documents to be signed, but the document which includes all the fees and costs along with an accounting of the closing will be detailed on a standardized document, referred to as the HUD-1 (pdf file) (New 3 Page Document 2010).
The HUD-1 is an outgrowth of RESPA and is signed by both parties. A signed copy goes to all parties, including the loan company (which has previously approved the document), the attorney, and the real estate agent(s).
After closing and the exchange of keys or possession arrangements, the Attorney will record the necessary documents (Deed and Mortgage) in the county court records providing constructive notice of the new owner. The recorded deed will be mailed to you, the buyer. As soon as you receive the deed, you should have your “homestead” recorded using the “stamped deed” to insure a reduced tax assessment. This is accomplished at the Judge of Probate’s office and is a free service.