After the initial excitement of the hard fought process of getting into contract wears off, the natural reaction is: what happens next? The glib answer is: wire your earnest money, perform inspections, get your loan approved, close. Although accurate, it misses all of the emotion and anxiety of the moment.
Your real estate professional should sit down – or zoom , these days – with you to go over any questions that you may have. You should be provided with a timeline, wiring instructions, and communication procedures throughout escrow. Your agent needs to reach out to your lender because they need to work well together throughout the process.
The Earnest Money Deposit (or EMD) is a relatively simple concept. It shows the seller that the buyer has skin in the game. However, this first check (or wire) has to be in within three (3) days of ratification. It can be hard to write…and that’s ok. It’s scary to put down thousands of dollars not knowing for sure if the sale is going to go through. As long as everyone (including you!) is operating in good faith, that first deposit will come back should the deal fall apart. Also, the amount of money that you put down in your EMD will be credited towards the overall deposit amount for the contract. You won’t have to pay it twice.
Inspections stress everybody out. The selling side is stressed out because they’re worried that the buyer is going to find something and just walk away. The buyer’s worried that there is something fundamentally wrong with the property. Unfortunately, many times a buyer will come to the table assuming that the seller is trying to pull a fast one and hiding something. About 99% of the time, this is the opposite of the truth.
The Buyers Inspection Election – or BIE – is there to guide the buyer in determining what types of inspections are available. Unless the seller has done inspections ahead of time, assume that you will have to pay for the inspections. The three most common inspections are Pest, Home, and Roof – all three will run about $1,000 – $1,200 depending on the size of the home.
In general, the home inspector will do a cursory inspection of the HVAC, electrical, plumbing, and appliances to ensure that they are in working order. If something comes up during the home inspection, then it would be good to order additional inspections by experts in the field.
Once inspections have been completed, it’s up to the buyer and their agent to decide whether or not they are going to ask for any repairs if needed. This is standard and many sellers and listing agents expect for the buyer to come back with something. It’s part of the process.
Loan & Appraisal
In a fast moving seller’s market, like we have today, the appraisal may be the most nerve-wracking part for all parties. Multiple offers and homes going for thousands – if not tens of thousands – of dollars over asking price. This makes appraising a property difficult. Ultimately, it’s up to the listing agent to make sure that the home appraises at purchase price. If the house fails to appraise there are four options: 1) both sides come together and agree to split the difference between the purchase price and appraised value; 2) seller lowers the purchase price; 3) buyer agrees to make up the difference; and 4) cancel the contract. Obviously cancelling the contract is the least desirable option but depending on how far apart the buyer and seller are, it may be the best option.
There was a study that came out several years ago that showed people would rather have a root canal than go through the mortgage process. Although things have been streamlined to make it easier, it’s still a substantial process. Your loan officer will need several documents from you up front. About a week later, someone else from the lender will need those same documents from you…and then, maybe 5-10 days later the underwriter will need the same documents from you because – like the government – not every department talks to each other. It may be frustrating, but it’s ok. Like I said before, it’s part of the process.
Once the underwriter is satisfied that you are qualified to purchase a property, they let your loan officer know that you are good and we get a clear to close. Once that happens, all remaining contingencies are removed (unless you have to sell to buy, but that’s a different blog post) and we begin the countdown.
A Note on Closing
Just because the lender gives the all clear to close doesn’t mean that you get to walk into the title company and sign and get your keys that day. There are several steps that need to happen:
- Closing documents (CDs) issued: The lender is required to provide you with closing documents that detail everything about your loan and repayment details. It should also include an estimated closing statement telling you how much cash you will need to close. Make sure that both you and your agent look at this statement to ensure that everything is correct. Also, there is a mandatory 3 day waiting period from the time that the CDs are issued to the time when you can sign.
- Signing: It’s rare that you can sign and move-in on the same day, even with electronic recording becoming more and more prevalent. Also, most title companies in the area won’t set up a signing until they’ve received the loan documents from the lender. This can cause a delay of a day or two depending on buyer’s ability to sign and title’s ability to set up a signing. The signing itself can take anywhere from 30 minutes to 1.5 hours. Also, because of Covid-19, many title companies are moving towards mobile notaries.
- Funding: The title company has to receive the funds from the lender before they can go to the county registrar and record the new deed. This can take 2-3 hours after the wire has been initiated so just because the lender “funded” the loan at 1pm, doesn’t mean that title will receive it in time to get it to the registrar to record same day, even in Solano County where there are e-recordings.
- Recording/Closing: Once everything has been received by the title company, they take the package over to the county registrar to record a new deed of trust. Once recorded, they notify everybody that the deed has been recorded and that we have closed. A note about recording…the county only allows so many recordings per day per title company. So, if something happens and you miss your time slot, you are more than likely going to be set back a full day.