Contract: Now What?
Congratulations, you are on your way to owning your very own home! Follow these suggestions (and your Realtor's advice) so that escrow and settlement with go as smoothly as possible.
SO WHAT'S NEXT?
Getting your chosen property “Under Contract” is just half of our job. Reaching a successful settlement requires attention to a number of details. We have comprehensive checklists to cover every aspect of your purchase. We will be tracking the process, eliminating contingencies, and satisfying other requirements of the contract. Below are some possible checkpoints you should be fully aware of at this time:
- Earnest Money Deposit Due
- Home Inspection Contingency Expires
- Appraisal Contingency Expires
- Finance Contingency Expires
WHAT HAPPENS TO MY EARNEST MONEY DEPOSIT?
Your earnest money check is deposited into an escrow account on the business day following final ratification unless otherwise stipulated by the contract. It is applied towards your down payment and closing costs at settlement.
EMD to Title Company
Drop off or FedEx is the best way to ensure your earnest money deposit arrives on time. The EMD can be wired as well but you must contact the title company directly for wiring instructions.
WHEN DO I APPLY FOR MY LOAN?
The loan contract specifies how many days you have to make a FORMAL LOAN APPLICATION to a mortgage lender, but typically that is required within one week.
Please Note: Now that your contract is ratified, please refrain from making large financial transactions or depositing large sums of money/gifts. These need to be communicated to your lender as much in advance as possible.
The lender requires a FIRE AND HAZARD INSURANCE POLICY prior to settlement. It is your responsibility to purchase this insurance policy and provide a copy of the receipt to your lender. You can contact your car insurance company, who might offer a discount if you have both policies with them.
CAN I GO THROUGH THE HOUSE ONCE I HAVE A RATIFIED CONTRACT?
Typically, after contract ratification the buyer would go back through the house only for the HOME INSPECTION and just prior to settlement for the FINAL WALKTHROUGH. If you need to take measurements for furniture or make paint decisions, that should be done during those times.
WHAT OTHER COSTS WILL I HAVE PRIOR TO SETTLEMENT?
Be prepared to pay for your APPRAISAL and CREDIT CHECK when you apply for your loan. Any inspections agreed upon in the contract are paid for by YOU as the buyer. Payment will be required at the time the inspection is performed. Here is a rough estimate of the fees and inspections you should expect.
- Home Inspection: $180-500 (based on size or sales price of the home)
- Credit Check: $60 (per person unless married)
- Appraisal: $400-450
- Termite Inspection: $40-50
Miscellaneous Inspections (if needed):
- Mold Inspection: $300-500
- Structural Inspection: $450-550
- Radon Test: $150-200
WHAT HAPPENS AT THE HOME INSPECTION?
It is in your best interest to attend the inspection so we strongly recommend that you do.
In addition to doing a thorough inspection of the home, most home inspectors will explain the home’s major systems and components as you go through. The entire process will last approximately 2-3 hours depending on the size and complexity of the home. Upon completion, the inspector will provide you with either an electronic or written report and will go over any deficiencies found. We will then discuss the report to prepare the home inspection addendum listing out the repairs you wish to have addressed and that will be presented to the listing agent.
Please Note: According to the Home Inspection Contingency, the home inspection and contract addendum must be completed and delivered to the seller by the day specified in the contract or you have waived your right to ask for any repairs.
REVIEW OF HOMEOWNER'S ASSOCIATION OR CONDOMINIUM DOCUMENTS
If you are purchasing a home or condo that is part of a Homeowner's or Condominium Association you will receive a copy of the resale package. If there is any provision of those documents that is unacceptable to you, you have the right to declare the contract null and void within the specified time frame.
- MD: 7 Calendar Days for Condo & 5 Calendar Days for HOA
- DC: 3 Business Days for Condo
- VA: 3 Calendar Days for Condo & HOA
The resale package will be ordered by the Seller and they will be delivered to your email address listed in the contract (usually takes 10-14 days unless rushed).
WHEN DOES THE APPRAISAL TAKE PLACE?
After you make loan application, your mortgage company will arrange to have the house appraised. It generally takes a week or longer for the appraisal to be completed. We contact the lender to check the status of your loan and confirm that the appraised value is at least equal to the purchase price. You will be notified immediately if the appraisal is less than the agreed upon price. Depending on the time frame in the contract, sometimes it’s advised to wait until the homes inspection contingency is removed to order this. If you choose to do so, please check with the lender to make sure we will meet the time frame on the Appraisal contingency.
WHAT ABOUT THE TERMITE INSPECTION?
Unless you have a VA loan, the buyer pays for the termite inspection. It must take place within 30 days of closing. It is not necessary that you be present for this one. If the inspection reveals any evidence of wood destroying insects; it is the sellers’ responsibility to treat the infestation and correct damage. Please refer to your Contract of Sale for more specific information concerning your termite inspection.
WELL AND SEPTIC INSPECTIONS
If the home you are purchasing is not on public water and/or sewer, the seller will need to provide an original septic inspection certificate and/or water test certificate at closing. Typically, the well and septic inspections are provided by the seller prior to closing. Send a copy directly to your mortgage lender for removal of these conditions on your loan.
CHOOSING A HOME WARRANTY
If your contract includes a home warranty, you will need to choose a provider for your warranty (if none is specified on the contract) and the amount of coverage. Usually the contract will indicate a dollar amount for the coverage that will be paid for by the sellers. You want to max out your coverage to be as close to that dollar amount as you can. If you go over the amount indicated in the contract, you will be responsible for paying the difference. Once you have chosen a company and coverage, please forward it to the settlement company so they can update the settlement statement and set up the coverage for you. You will need to bring your complete application from the warranty company to settlement. Some warranty companies that our clients have used and been satisfied with are as follows.
WHEN DO I CHANGE THE UTILITIES INTO MY NAME?
Both you and the sellers should contact the utility companies to arrange for transfer of service as of the day of settlement. If you are involved in a pre or post-settlement occupancy arrangement, transfer should coincide with the day you start occupying the property. Because an unpaid water bill can be a lien against the property, the water company will require a meter reading in order to make the transfer. Take both an inside and an outside reading if possible the day you do your FINAL WALK THROUGH. The title company will hold approximately $300 in escrow from the seller to pay the final water bill. When you call in the reading, give the water company the name and address of the title company who will pay the final water bill. Fuels stored on the property, such as oil or propane gas, convey to the buyer. Make sure you contact other providers too to schedule a starting date for the service.
You might want to visit your post office and have them forward your mail to the new address. You can also do this online at:
FINAL WALK THROUGH
As the buyers, you are entitled to a final walk through of the property before settlement. You should expect the property to be vacant (unless other arrangements have been made), free of trash, and broom cleaned. The walk through typically takes place the day before or day or settlement ensure that the property is in the same condition as of the day the contract was signed. We are also looking to see that any items identified as deficient in the home inspection that the seller has agreed to correct have been repaired. As the buyers, you will attend the final walk through with your agent (normally the sellers and their agent do not).
Settlement usually takes place at the title company’s office.
If you are unable to attend the closing and are planning to use a power of attorney, please the settlement attorney know as soon as possible. Settling via power of attorney will require that you designate someone to attend in your place and that you have the necessary paperwork prepared in advance by the attorney. Since the power of attorney is required to be filed with the courthouse, approximately $40 will be charged to you at settlement to record the “power of attorney” and $100 for the attorney to prepare (rough estimate).
WHAT DO I NEED TO BRING TO SETTLEMENT?
You will need to bring a CASHIER’S CHECK (made out to the title company) or wire the funds directly to directly to them for the balance of your down payment and/or closing costs. Consult your lender a few days beforehand for the approximate amount. Please note that at this point in time an exact amount will not be available. The final HUD will be provided to you within a day or two of settlement. This is dependent upon the lender getting their completed loan package to the title company.
Also, you should be aware that the title company WILL NOT accept personal checks except for a small difference between the actual amount due and the amount of your cashier’s check. If you bring too much money, they will refund the overage at settlement. You will also need to bring a PHOTO ID and a copy of your HOMEOWNERS INSURANCE POLICY if not already provided to the lender.
We are here for support and look forward to giving you a five-star home buying experience. Please let us know if you have any questions along the way.