You might think that buying a home is as simple as choosing a house, waiting for the seller to accept your offer, putting your signature on some dotted lines, and receiving the key. Are you aware of the prepaid costs when buying a home?
Conversely, buying a home without a realtor can be a long and complicated process that ends with a successful deal and transfer of property rights. This process takes up to four to six weeks once the offer is good to go as it involves inspection, appraisal, and financing.
Gear up for these four surprises during your transition from buyer to homeowner.
Surprise 1: It is more than the down payment
Apart from the down payment, plan to pay the closing costs upfront, such as third-party fees for appraisals, attorneys, credit reports, taxes, etc. This amount is typically three to six percent of the total loan, but the total closing costs vary by state and transaction. This is when you opt to buy a home without a realtor.
The good news: Your lender must provide you with an estimate of your closing cost within three days of submitting your home loan application. Yes, you should know the prepaid expenses when buying a home.
Pre-approval of your home loan is worth looking into. Pre-approval includes the maximum loan amount as well as estimates of closing costs. This can give you a more significant advantage in negotiating the price of the home and closing costs with the seller.
The bad news: You cannot postpone paying closing costs. You need to pay these when closing the purchase.
Surprise 2: you and the seller are not the only people involved
While you define the loan with your lender, purchase the homeowner’s insurance, and schedule the transfer of utilities, the other parties involved in the purchase process perform their tasks. If the seller agreed to make repairs after the home inspection, you must complete that task and notify the utility companies of your final billing date. Other duties worth considering by the closing agent, the title company, the real estate agent, and some other third party, including but are not limited:
- Calculation of prorated property taxes
- Determination of loan amounts
- Communication with you and the seller regarding the closing schedule and the documents necessary for that operation
- Receipt of the lender’s instructions and paperwork for you and the seller to monitor at closing
You can take a last tour of the home within 24 hours of closing. If you are not satisfied, you may decide to postpone the closure to resolve your concerns. In these 24 hours, your lender will likely confirm closing costs and final prepaid costs to bring in the money at closing. Make sure you know what checks to bring, the amount of each inspection, and the payee for every check. You may also want to know if only cashier’s checks or certificates are acceptable.
Surprise 3: you probably need patience and paperwork
When preparing for closing, be sure to bring your original purchase contract, a current passport or driver’s license to confirm your identity. If your lender wants confirmation from an insurance agency that you purchased risk insurance for homeowners, keep papers that prove. Schedule a meeting early in the day. In addition, you must be prepared to waste one or more hours signing a stack of documents.
Surprise 4: the closing of the sale covers both the purchase of the home, and it’s financing
At closing, you will need to sign many documents, and it is vital that you carefully check for any unexpected clauses, misspelled names, or incorrect addresses or amounts. The loan documents may include a mortgage note to pay the amount you borrow and a statement of truthfulness. Next, the loan’s interest rate, the annual percentage of interest, and the amount you borrow, and the total cost during its duration.
Other documents that you can control and sign at the closing include, among others:
- Closing Disclosure
- A transfer of title (or title transfer deed with title guarantee)
- A statement of information (or identity) stating that you, and not someone with the same name, is buying the home
- A certificate of habitability