Real talk: buying a house can be intimidating. So we created the first-time homebuyer series to take the mystery and anxiety out of the house-hunting process. Dive into our complete guide which covers every step of the process: why you should buy a house, how to get pre-approved for a loan, how to find an agent, how to search for a home, how to make an offer (and negotiate!), how an inspection works and how to close once you find the dream home. Don’t worry we spell it all out for you so that if this is your first time (or third) you’ll have all of the information you need for a successful purchase right at your fingertips. Read the entire series here.
Congratulations, you made it through the home inspection! At this point, you should be well aware of any issues with the home and your agent has negotiated with the seller to decide which issues will be remedied by them. Once negotiations are complete, your updated offer can officially be accepted and you can move forward.
So, what now? You’re not quite ready to close on the house but a lot of the big steps leading up to this point are complete. There’s a lot that will go on behind the scenes here with your agent, their office, your lender, the seller’s agent and any other coordinators that may be involved.
What does this mean for you? You wait. This period of time between offer acceptance and closing can take around 45-60 days. This isn’t necessarily the most exciting part of the home buying process- in fact, it can feel like a standstill to you as the buyer. But rest assured, there’s a lot going on that you just won’t see.
Our guide is going to explain all of the behind-the-scenes work going on as you prepare to close on your home! We’ll cover:
- What a title and title search are
- What an appraisal is
- What homeowners insurance is
- What HOA documents might tell you
- What to know if you’re buying in a rural area
- What else you should be doing to prepare to close
If you’d like to jump to a certain section of the guide, just click the links above.
Let’s dive in!
What is a Property Title Search?
Once your final offer has been accepted by the seller, your agent, lender, closers, transaction coordinators and any attorneys involved will get to work on all the paperwork and legal tasks that need to be completed before you can close. One of the most important tasks is a property title search.
A property title is the designation of ownership, while a deed is a legal document declaring ownership. It’s easy to use the two terms interchangeably but a title is not the same thing as a deed. Title is a legal term that refers to your right to own the property.
When someone does a property title search, they are using public records to determine all previous owners of the property and find out if there are any liens or previous claims to the property. This can be done by a title company, an attorney or even the lender. You shouldn’t have to facilitate any of this- the seller will handle this side of things.
What Do You Find in a Title Search?
Everything! The title search will reveal every previous legal owner of the home, as well as any loans made against it, property tax records and any judgments or liens against the house. If a title search comes back clean, that means nothing adverse was found and rights to the property can be transferred to you at closing. However, if the title search does not come back clean, there may be liens on the property.
A lien is a legal claim to a property, usually as a form of security on a loan or payment for services. This happens if the seller, or any previous owners, owe taxes to the government, money to contractors for unpaid home renovations, lost a lawsuit and couldn’t pay back damages or otherwise owe money to a creditor. They can lay claim to the house as a form of repayment- and you don’t want to deal with that! Remember when we covered offer contingencies in a previous post? A clear title contingency covers this type of scenario so that you are protected if the title search does not come back clean.
What Happens if Something is Found in the Title Search?
The January 2020 REALTOR® Confidence Survey Index from the National Association of REALTORS® found that 22 percent of closings were delayed by problems that were ultimately resolved. Of those delayed transactions, 13 percent were due to issues with the title or deed. So it’s not something that happens in every home purchase, but it’s definitely not unheard of.
If the title search reveals a lien against the property, you have several options. You can still buy the house if there are liens on it- but the seller should clear them first and this is where things can get tricky. Liens are attributed to the property, not the owner. So if you were to purchase a home with an unresolved lien, it would become your problem.
If the seller is able to pay off the lien before closing, that’s the best option. But they won’t always be able to- after all, they’re behind on payments to someone for a reason. Sometimes the seller can talk to the creditor and establish a payment plan or reduce the amount owed. However, this can delay the sale of the home.
Sometimes the sale of the house can cover the lien and might be a viable option. This might understandably make you nervous- what if the seller doesn’t come through? If clearing the lien depends on the sale of the house, your agent can write it into a new contract before you close so the seller is held responsible for clearing the lien.
Each situation is a little different so a lien or judgment won’t necessarily always be a deal-breaker. However, some lenders won’t let you close on a house if there are liens on it. Your agent will be able to advise you on the next steps if a lien is found during the title search.
The worst-case scenario? You have to back out of purchasing the home because the lien is too big to clear. The clear title contingency your agent should have written into your purchase agreement allows you to pull your offer on the home in this case. At this point in the process, it would be upsetting to lose out on the home. But you do not want to purchase your first home with a substantial lien levied on it- your agent should also dissuade you from considering this. If the deal falls through, your agent can be a great source of support and will help you through the offer withdrawal and going back to the drawing board in the house hunt.
What Happens if No Issues are Found in the Title Search?
If the title search comes up clean- no liens, judgments or other issues are discovered- the title company, attorney or whoever is doing the search will be able to transfer the title to your name once you close on the home.
The title company will put together a property abstract that you will receive after closing. A property abstract is a complete collection of legal documents relating to the property, including the deed, mortgages, tax records and previous sales. Essentially, it’s the history of the property.
What is Title Insurance?
Title insurance protects the policyholder from the financial ramifications of an incorrect or defective title search. If the initial title search doesn’t reveal an existing lien or problem, it could leave you and/or your lender on the hook for damages if one is discovered later.
There are two types of title insurance: one for lenders and one for owners. Your lender may require you to take out a lender’s title insurance policy before they fund your home loan. This would protect the lender from financial loss if a poorly done title search doesn’t reveal an existing problem. A lender’s title insurance policy would not protect you and you could still be held liable which is why you may want to take out your own policy.
An owner’s title insurance protects you if a problem is found after the title search. The insurance company will provide legal assistance and could pay out on any claims made against you. The policy lasts for as long as you own the home and you’d pay for the policy at closing. Depending on the situation with your seller, your agent may be able to negotiate that the seller covers the cost of the owner’s title insurance as part of the closing costs.
What is an Appraisal?
Before your lender can take the necessary steps to officially approve you for a home loan, they will complete an appraisal of the home. An appraisal determines the value of the home using several factors: an inspection, comparing the home to recent sales of similar properties in the area and current market trends. A certified appraiser will conduct an inspection of the home and fill out a detailed report that includes information about the home and all the public information about the area that will be submitted to the lender.
Why do lenders require an appraisal?
To make sure the amount of your home loan matches the fair market value of the home. The lender is ensuring that what you’re borrowing from them is what you actually need. The lender will order the appraisal and the cost (usually around $300-450) will be rolled into your closing costs.
If the appraisal matches the purchase price- Congrats! Your lender will confirm your home loan amount is set and will continue to work on your approval.
The appraisal places the home at a lower value than the purchase price- You and your agent will go back to negotiations with the seller. The lender won’t want to loan you more than you need to purchase the home.
This might delay your closing process, but at this point, your seller is unlikely to want to lose you as a buyer. Your agent can work on negotiating down the final purchase price or asking the seller to make up the difference in other ways, such as covering closing costs or the cost of a home warranty. The seller would be entitled to a second opinion if the appraisal comes in lower than the purchase price, so don’t be surprised if they ask for a second one.
The appraisal places the home at a higher value than the purchase price- Your lender will be comfortable loaning you the purchase price amount and you know you’re buying a house that’s valued at more than what you’re paying for it.
What is Homeowners’ Insurance?
This is the time you should start researching homeowners’ insurance policies and find one to purchase. Homeowners insurance is just like the policies you may already have carried, such as auto or renter’s insurance. It protects you financially if one (or more) of four things happens: damage to the interior of the home, damage to the exterior of the home, loss or damage of your personal belongings and protection if someone is injured on your property.
Depending on your policy, you’ll pay a deductible and the insurance liability limit will cover the rest. Basic policies cover everyday incidents or accidents but don’t usually cover acts of war or acts of God, which usually means natural disasters. If you’re buying a home in an area that’s prone to incidents like floods or tornadoes, you might have to take out a separate policy to specifically cover that. Each insurance company is a little different in what they will and won’t cover so you should sit down with an insurance rep to discuss your options.
Your lender will require proof of homeowners insurance before they approve your home loan. Homeowners insurance is not the same as mortgage insurance or your home warranty, so make sure you understand the differences.
Does Your New Neighborhood have a Homeowners Association?
If you’re moving into a neighborhood with a Homeowners Association (HOA), you will want to find out if there are any rules or restrictions you’ll have to abide by. An HOA is a community organization specifically for the people in a certain neighborhood or planned community. The HOA is run by the people who live in the neighborhood and you’ll typically pay a fee to the HOA in order to live there. The HOA is structured like a board with elected members who set guidelines (also known as covenants) and enforce them.
What are the benefits of an HOA?
An HOA can provide amenities to the neighborhood such as a community pool, playground, parks, tennis courts and other recreational spaces. In some communities, HOA fees can cover basic lawn maintenance, trash removal and snow removal for the residents. An HOA might also organize community events such as block parties, holiday celebrations and annual events.
What are the downsides to an HOA?
An HOA, while appealing to some, can feel restrictive and overbearing to others. It’s common for HOA covenants to dictate what homeowners can do to their homes in order to protect property values- i.e. you can only paint your house in approved colors, you can’t have a fence in the front yard, you can’t build your own shed, etc. You may also find the HOA fees are higher than your budget allows and potentially not worth the money if you don’t take advantage of the community events an HOA might provide. An HOA can also fine residents who don’t comply with their covenants.
If your new home is in a community with an HOA, make sure you review the HOA covenants and bylaws before you close or during the inspection period. You may not have a problem with the restrictions an HOA might set, but you should know about them before you move into the neighborhood. Your agent can go over HOA documents with you if you find the covenants difficult to decipher. Your agent can also let you know about any other paperwork you should review at this point.
What Do Buyers in Rural Areas Need to Know?
If you’re purchasing a home in a rural area, it’s likely you’ll have different systems that need to be inspected and cleared before you can close on the home. Rural homes can be unique in that they’re not using municipal resources like water or gas. Here are some of the systems you may encounter:
- Septic system
- Fuel tank
Homes and properties outside of municipal sewer systems typically use their own septic systems. A septic system is not maintained by the local government, instead, it is the sole responsibility of the homeowner.
If you’re purchasing a home with a septic system, it will need to be inspected and cleared before you can close. A home inspector may only be able to do a visual inspection of the septic system- basically running the water- and that’s about it. In the Des Moines area, it’s the seller’s responsibility to hire a licensed septic inspector who can do a specialized test to evaluate the septic system.
These inspectors are certified by the National Association of Wastewater Technicians and will locate the septic tank, check for backup or leaks, evaluate the condition of the tank, make sure the dividing wall is in good condition, check the drain field and determine if the tank needs to be pumped.
A home in a rural area may rely on a well for water if it’s outside of the municipal water system, but every area has different rules and regulations regarding water systems. The seller should also have the well inspected and the water tested before closing to make sure the water quality is good. Well water is untreated groundwater that comes from an aquifer underground and the well’s pump system gets up to the house.
Well water is different from water from a municipal system so you should be aware of some differences if you’ve never lived in a home with a well before. Well water is hard, which means you may have to install a water softener if the house doesn’t have one already. If it does have one, you’ll have to make sure it’s inspected as well.
If the house doesn’t have a water softener, you may notice staining on the inside of sinks, tubs and toilets. Hard well water can be high in iron which can cause orange discoloration that’s difficult to clean off. A water softener will fix this problem or you can install a special filtration system. Well water can also give off a certain smell if there is no filtration system to catch the sulfur commonly found in groundwater.
Homes that have wells also usually have septic systems. The septic inspector will make sure the well and septic systems aren’t too close together- you don’t want to risk cross-contamination!
If the house is not on a gas line, it may rely on a fuel tank for heat and gas appliances. The fuel tank may be buried or above ground, it just depends on your area and the age of the house. Houses built before the 1970s typically had buried tanks. The tank will need to be included in the home inspection to make sure it’s in good condition.
While not common anymore, if you do happen to be buying a house with a buried fuel tank, you should have it checked for leaks. This requires a specialized inspector who can pressure test the tank and test the soil around it to see if any chemicals have leaked out. If a leak is found, you’ll need to work the seller on the solution. Removing the tank and subsequent remediation of the surrounding area to prevent contamination of the soil and groundwater is expensive.
If the home is newer, chances are good the fuel tank is above ground. You should ask the seller to provide a history of installation, maintenance and any repairs that have been made while they have lived in the home. You’ll also need to find out how big the tank is, how frequently you’ll have to pay to refill it and what kind of warranty or service support the fuel tank company provides. Sometimes the seller doesn’t actually own the fuel tank but rents it from the fuel company instead. If this is the case, you’ll have to talk to the company about taking over the contract and what the monthly fees are.
Rural homes can come with their own unique systems that need to be inspected and cleared, just like the rest of the home. Your agent can work with you to connect you to the specialized inspectors who can handle septic systems, wells and fuel tanks.
Prepare to Close Checklist
We just covered a lot of information. You can use the handy checklist below to keep track of what’s been completed and what needs to be done as you prepare to close on your house!
What Else is Going on as You Prepare to Close?
What else is going on during this waiting period before you close on the house? Quite a few things!
- Pest inspections
- Negotiated repairs and improvements
- Lender is preparing to officially approve your loan
- You should prepare to move
Pest inspections- If the pest inspection revealed anything that warranted treatment, this is when it would be happening. You’ll receive notice that treatment is complete and more information on prevention from the pest control professional.
Negotiated repairs- If your agent negotiated any repairs and improvements with the seller, they should be working on them during this time in order to complete them by closing. You won’t be able to check on the progress of these repairs, but your agent should be in constant communication with the sellers to ensure it’s completed. You’ll be able to see the updates when you do a final walkthrough with your agent. We’ll talk more in-depth about the final walkthrough later on in the first-time homebuyer series.
The lender is preparing to close- The lender is gathering the results of the title search and appraisal as they are completed. Your lender will be working on their final assessment of your finances to officially approve you for the home loan. We’ll cover the lender’s role in final approval in the next post!
Prepare to move- This would be a good time to start shopping around for a moving truck if you need one. Your agent negotiated a move-in date that is in your purchase agreement- you can use this to reserve a moving truck but just know, if something happens between now and closing, it could change. If you have to give notice to a landlord, this would also be the time to talk to them about vacating your rental property.
Can I visit the home during this time?
No, you cannot visit the home without express permission from the sellers. And you should have a really good reason- taking more photos or making repairs yourself aren’t good reasons. Remember, you don’t own the home until the last closing paper is signed and your agent hands you the keys. Until that moment, it’s considered trespassing if you’re at the house without the permission of the sellers- who can still live there up until closing. You shouldn’t be back in the house until the final walkthrough.
Now you know how much is going on behind the scenes as you prepare to close on a house! Your agent’s office, your lender and the seller are busy completing a title search, appraisal, completing any agreed-upon repairs and if the home is in a rural area, completing inspections of any speciality systems. During all of this, you should be purchasing a homeowners’ insurance policy, reviewing any HOA documents and any other paperwork your agent shares with you.
Preparing to close on a house can be a lot of paperwork and just waiting as other players get you ready to close. Have patience and stay in contact with your agent. They’ll update you as every step is completed and explain what every legal document means. The next step will be getting final approval on your home loan from the lender- which we’ll cover in the next post!