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Monday, May 15, 2017

I got through the inspection and appraisal OK; what do I do now?


 Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 12

This is the twelfth post of a series in an FAQ format that I hope will help would be buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ  –  I got through the inspection and appraisal OK; what do I do now?

Probably more important than what you can be doing while awaiting the closing date is what you SHOULD NOT BE DOING, which is making big credit purchases, like new furniture or a new car or any other big hits to your credit cards and your credit worthiness. A big part of what the mortgage
company underwriter looks at when evaluating your credit worthiness is your debt to income ratio. Your income is unlikely to change dramatically in the few weeks until closing, but your debt could, if you go out and start buying new furniture for your new home on credit.

I’m sure that your mortgage person already told you that, but it is worth reinforcing. I had a young man as a client who made an accepted offer on what was to be his first home. After getting through the inspection process (and having the homeowner make some repairs) and the appraisal, he felt so good about moving into his first house that he decided that his older car wouldn’t look right in his new driveway, so he bought a new car to go with his new house. That purchase showed up nm his credit report, which the underwriter checked before giving the “clear to close”, and he no longer qualified for the mortgage, due to his increased debt. The deal fell apart. He was devastated and the seller was very angry, as you can imagine.

So, the message is to cool your jets on all of your plans for the new house. Don’t run out and start buying things for it, not even the paint that you are planning to use to change the colors inside. Don’t do anything that changes your debit to income ratio. The mortgage company underwriter will pull your credit report one last time just before issuing the “clear to close” on the mortgage and you will be required to sign an affidavit at closing that states that everything that you put on the mortgage application is substantially the same as when you filled it out.

I actually had a client once who got laid off from his job the week of the closing on his new-build house. He had not yet sold his current house that I had listed at the time. He wanted to go through with the closing, but I informed him of the affidavit and the consequences of lying about his employment situation and he pulled out of the deal, even though he lost a substantial amount of money from the down payment that he had already made. He would have had to commit fraud, has he lied and signed that affidavit.  He was off work for 6 months and ended up glad that he did not try to go through with that deal.

There are many things that you will need to be dong while you await the closing date. One thing that your mortgage company will insist upon is lining up insurance for the place. The mortgage company usually requires that you provide proof of a pre-paid, one-year homeowners insurance policy on the place. You should also reach out to the utility companies and set up accounts for your gas, power and water/sewer (if you aren’t on a well and septic). If you are an existing customer of those same companies you won’t have to establish a complete new account; however, first-time home buyers will have to set up accounts. When you get to the closing date you will want to inform the utilities that you are “transitioning in” to the property. The Seller should have also informed them that he is transitioning out and should have ask for final readings, so that his final bill can be calculated. 

Your mortgage rep should have already gone over the various things that you will be paying for in the closing costs. Remember that, in Michigan at least, you will be picking up the property taxes from the closing date forward. In most of Michigan, property taxes are paid in advance, so the Seller will be reimbursed for any un-used portion of his last property tax bill and that will be shifted to you. You will also be paying for a title insurance policy that protects your mortgage company, in case of a ownership dispute later. The Seller actually pays for the title policy that protects you. The mortgage company will also establish an escrow account to collect for the next tax bills and you will have to pay into that to bring it up to date. Of course there are various mortgage company fees and costs that
will show up on your Purchasers Closing Statement (what used to be called the HUD Statement).

By law you should receive that Closing Statement three days ahead of the closing date.  Look it over carefully and make sure that you understand what all of the fees and charges are that you have to pay for and have your mortgage person explain them to you, if necessary. You will receive the other closing documents at that time too, so look them over for any errors, like having your name wrong or having the wrong property listed (it happens).

Sometime within the last 24-48 hours before the closing, you will have the opportunity to do a “final walk-through” of the property. This is to give you a last opportunity to make sure that the property is substantially the same as it was when you made the offer. Sellers have been known to make honest (or otherwise) mistakes and remove things from the house that were supposed to stay – most often things like light fixtures or window treatments. If you see that something has been removed or if you notice damage that you can’t live with, you have the right to require the Seller to replace the items or make the repairs or you can still walk away from the deal. Most Seller will not let the deal fall apart because of some issues like those and most of these things can be resolved. If there is a large change in the sale price, due to a seller concession for something the closing may be delayed while new paperwork is prepared and the three-day review clock is reset.

If the PA specifies some amount of post-closing occupancy for the Seller you won’t be getting the keys at closing, so you’ll have to wait some more. You’ll probably do another walk-through the day before the occupancy ends or the day that the keys are turned over, so that you can assess any damage that the Seller (now a renter in the home) might have caused. You should have had some provision in the PA for a post-closing occupancy damage deposit, from which you’ll need to negotiate with the Seller to cover those damages. This can be a sticky situation, so don’t get to nit-picky about really minor stuff.


So, the bottom line is not to do anything stupid financially that would jeopardize the deal and to do the things necessary to be ready to move in after closing.

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