Set the Closing Date
A closing date is scheduled once your loan has been approved and the commitment letter is accepted. Usually, the real estate sales professional will coordinate this date with you, the seller, your lender, and the closing agent. If the lender has given you a rate lock-in (a promise that your interest rate will be the same as it was at the time you submitted your application), make sure that closing occurs before the lock-in expires.
Purchase property insurance
Your lender will require that you purchase property or "hazard" insurance, which protects you and the lender from loss in the event the house is destroyed or damaged in any way. Typically, the lender requires only minimal coverage. This is called "replacement value" because it is the amount of money the insurance company will pay to replace (rebuild or repair) your house if it is destroyed.
To find a policy that suits your needs, compare prices from several insurance companies for the specific policy you want. Be sure, when you compare prices from different companies, that you have been quoted rates for the same coverage. If you already have another insurance policy (such as car insurance), check first with the company that sold you that policy. Often if you buy more than one type of insurance from the same company, you receive a cheaper rate. It may make sense to take over the existing insurance policy held by the seller, but it is still important to compare prices with several companies.
One way to save money is to request a higher deductible amount on your policy. The deductible amount is a set amount that you pay out of your own funds to cover repairs or loss of your home or belongings. Once you pay the deductible, the insurance company pays the rest of the costs involved. The deductible amount can range from zero (in this case, the insurance company pays the entire amount) to several thousand dollars. If you choose to have a higher deductible, you pay the minor losses yourself, and you have protection against major losses. The higher your deductible amount, the less expensive your policy will be.
Most home buyers purchase a standard package of insurance that includes:
In addition to the standard coverage, you may want to include additional coverage to your policy, usually referred to as "riders." If you own an expensive camera, stereo, computer equipment, or valuable jewelry, you may want to purchase additional coverage for these items.
Lenders usually require that the first year's premium (the bill for your insurance policy) be paid in full at or before closing. A lender may insist on adding future hazard insurance premiums to your monthly mortgage payments in order to guarantee that the policy remains in effect for the life of the loan. The lender will then keep this portion of your payments in an escrow account and will pay the insurance bill when it comes due each year. If you plan to obtain the insurance on your own, you will need to bring a binder (a document from the insurance company that outlines the amount and coverage needed, and the effective dates) and a paid receipt with you to the closing.
Decide whether to have automatic payment for PITI
You may decide to arrange for your bank to automatically withdraw the money to cover your monthly mortgage payment from your checking or savings account. This is a convenience that saves the time it takes to write a check and mail it each month. You need to be sure the money is available in your account each month. If the bank attempts to withdraw the money to make your payment, and you do not have the funds available, you can face additional bank charges.
Considering a homeowner's warranty
If you're buying a new house, you are entitled to receive a homeowner's warranty that protects against defects in your home. Both the homeowner's warranty and a certificate of occupancy will be provided at closing. It is illegal to live in a newly constructed home unless you have a certificate of occupancy.
In recent years, homeowner's warranties have become available for older homes. These warranties serve as an insurance policy. If one of the major systems (such as your heating system, air conditioning, or a major appliance) breaks down during the first year you own your house, the warranty will cover the cost, or part of the cost, to replace or repair it. If you are thinking about buying such a policy or accepting a policy provided by the seller, examine it closely to see which potential problems are covered and which are excluded.
Conduct a final house check
As discussed earlier, one of the recommended contingencies to include in your purchase and sales agreement is the right to examine the property within 24 hours of closing. You may prefer to do this "house check" inspection without the seller, so that you feel more comfortable taking a close look at things. The house check allows you to make sure that the seller has moved out of the house and left behind any furnishings or property (such as appliances) that you agreed upon. You can also make sure that all conditions in the purchase and sales agreement have been met. Often, the real estate sales professional will accompany you for the final house check.
If your sales contract made the seller responsible for ensuring that the plumbing, heating, mechanical, and electrical systems are in working order at the time of the closing, this is your last chance to make sure that everything is in working condition. During the house check, things that have not been taken care of need to be noted. If these items cannot be corrected before the closing, the settlement agent may withhold funds from the seller to cover payment of the agreed-upon repairs. If you observe major problems or violations of the purchase contract on the house check inspection, you have the right to hold up the closing until they are corrected.
Conduct a house tour with the seller
The house tour is different from the final house check inspection. In this situation, it is critical to have the seller accompany you on a room-by-room trip through the house. Your goal is to gather as much information about the house as possible from the seller. The tour can be done either before or shortly after the closing. Come prepared with questions and a note pad, or even a tape recorder. If possible, bring a friend, family member or someone else who can accompany and assist you on the tour. If the person is an experienced home buyer, they may be more knowledgeable about what areas you’ll want to look at more closely. You'll want to ask where to find:
Bring some labels with you, so you can label the switches and cutoff valves.
Some other questions and considerations are: Is the seller familiar with the history of the house? Are there old photographs that you can reproduce? Are there wiring diagrams, or plans for renovations that were never completed? Who supplies the fuel oil? When is trash pick-up day? Ask the seller for a list of names and phone numbers of contractors and other professionals (electricians, plumbers, roofers, and carpenters) who have worked on the house. Find out what they did and when it was done. What type of seasonal maintenance did the seller do? Are there trees that require pruning, or plants that require special care? Be sure to ask the location of the shutoff for outside faucets. Ask the seller to tell you if outside faucets will freeze if you don't drain them before winter. Ask the seller for manuals or warranties he or she may have kept.
Obtain a final estimate of closing costs
In the past, buyers were sometimes surprised at the time of closing with hundreds or even thousands of dollars of unexpected closing costs. Fortunately, that is not the case today. You will know in advance exactly what costs you will be responsible for and the approximate total.
The lender is required to give you an estimate of closing costs soon after you have filed your application for a loan (see Chapter Four). Since these estimates are subject to change, you have the right to inspect the settlement form (called the HUD-1 Settlement Statement) one business day prior to closing.