Congratulations! Your offer on the house of your dreams has been accepted, and now you’re “under contract.” But before you start popping bottles, there’s a sizable list of things to do to ensure your dream home doesn’t become a nightmare.
In this article, we’ll cover the key steps from contract to close, helping you navigate this exciting but complex journey to homeownership.
What Does ‘Under Contract’ Mean for First-Time Homebuyers?
Being “under contract” means the seller has accepted your offer, but the home loan process isn’t final yet. This stage marks the beginning of a new phase in your home-buying journey. While it’s a cause for celebration, it’s essential to understand that there are still several crucial steps to complete before you can call the house your own. The contract typically includes contingencies that protect you and the seller, allowing either party to back out if certain conditions aren’t met.
Key Steps After Going Under Contract
1. How to Build Your First-Time Home-Buying Team
For first-time homebuyers, contacting your real estate team right after your offer is accepted is crucial to moving forward in the home loan process. While your realtor is probably already in the loop (and will help you organize and manage the rest of your team), several other professionals can help ensure this last leg of homeownership runs smoothly. Your core team will include:
- Your mortgage lender, broker, or advisor
- Home inspector(s)
- An insurance agent
- A real estate attorney (may not be necessary; it depends on where you live and/or the complexity of the transaction)
Each member of your team plays a vital role in ensuring a smooth transaction. Your lender will work on finalizing your mortgage approval, the home inspector will thoroughly examine the property, your attorney will review all legal documents (as needed), and your insurance agent will help you secure the necessary coverage for your new home.
Pro Tip: Remember, you always have a choice in who you want on your team. While your realtor will have a list of reputable, qualified inspectors, insurance agents, and other professionals, you are not obligated to hire their referrals.
2. Managing Home-Buying Costs After Going Under Contract
One of your first tasks will be to deliver the “earnest money” (also known as a “good faith deposit”) and due diligence funds to your realtor. These funds show the seller that you’re serious about the purchase and typically need to be submitted within a few days of going under contract. It’s crucial to handle this promptly to avoid any breach of contract.
At this stage, first-time homebuyers must submit all required documents to their mortgage lender to expedite the home loan approval process. This kickstarts the mortgage application process. The sooner you provide these documents, the smoother your financing process will be. Your lender will need various financial records, including tax returns, pay stubs, and bank statements, to verify your income and assess your debt-to-income ratio.
Pro Tip: Due diligence fees aren’t refundable because it’s what you, the buyer, pay the seller to take their home off the market while you get it inspected, do a title search, get an appraisal, etc. It’s a small price if you realize something (the home OR your personal circumstances) isn’t right for you to complete the transaction. Assuming all goes well, the seller often credits the due diligence fee back to you at closing. Earnest money is potentially refundable if the purchase doesn’t go through. And if it does, like the due diligence fee, earnest money is often credited back at closing.
3. Schedule Home Inspections
First-time homebuyers should prioritize scheduling a general home inspection, a critical step in the home-buying checklist. This inspection provides a comprehensive overview of the home’s condition, identifying potential issues or necessary repairs. It’s wise to book this inspection as soon as possible to ensure you have enough time to review the results and make any necessary decisions.
In addition to the general inspection, consider scheduling specialized inspections based on your realtor’s advice or any concerns you might have. These could include pest inspections, radon tests, or structural assessments.
Pro Tip: While these additional inspections add to your upfront costs, they can save you from expensive surprises down the road and might even affect your mortgage terms.
4. Review Inspection Results
Once you receive the inspection reports, take the time to carefully review them. These reports can be quite detailed and may highlight issues you weren’t aware of when you made your offer. Discuss any concerns with your realtor, who can provide context and advice based on their experience.
Based on the inspection findings, you may want to request repairs from the seller or negotiate the price. Your realtor can guide you through this process, helping you decide which issues are worth addressing and how to approach negotiations with the seller.
Pro Tip: Remember, this is a crucial step that can significantly impact your future happiness and finances in your new home. Attending the inspection in person is always a good idea, as it allows you to hear the inspector’s observation firsthand.
5. Home Appraisal
Your mortgage lender will order an appraisal to ensure the home’s value matches the loan amount. This step protects both you and the lender from overpaying for the property. The appraiser will visit the home and compare it to similar properties in the area to determine its fair market value.
If the appraisal comes in lower than the agreed purchase price, you may need to renegotiate with the seller, come up with additional funds for your down payment, or potentially walk away from the deal. Your realtor and lender will be invaluable resources in navigating this situation if it arises.
Pro Tip: A home appraisal contingency can help protect you if the appraisal comes in lower than the purchase price.
6. Secure Homeowners Insurance
Shopping for homeowners insurance is an essential step in the home-buying process. Your mortgage lender will require proof of insurance before closing, so it’s wise to start early.
Your insurance needs may vary based on the property’s location and characteristics. For instance, you might need additional coverage for natural disasters or valuable items. Don’t hesitate to ask questions and ensure you understand what each policy covers.
Pro Tip: Don’t just go with the first insurance company you speak to—shop around! Take the time to compare policies from different providers, considering both coverage and cost.
7. Final Mortgage Approval
As you approach closing, you’ll work closely with your lender to secure final mortgage approval. This process, often called “clearing to close,” involves providing any additional documentation your lender requires.
Pro Tip: During this time, it’s crucial to maintain your financial status quo. Avoid making large purchases, opening new credit accounts, or changing jobs, as these actions could jeopardize your loan approval. Your credit score is still important at this stage, so continue to manage your finances responsibly.
8. Final Walk-Through
Shortly before closing, you’ll have the opportunity to do a final walk-through of the property. This is your chance to ensure the home is in the condition you expect based on your contract and that any agreed-upon repairs have been completed.
Pro Tip: Take your time during this walk-through. Check that all appliances and systems are working properly and that nothing that was supposed to stay with the house has been removed. If you notice any issues, inform your realtor immediately so they can be addressed before closing.
9. Closing Day
Closing day is when you’ll officially become a homeowner. You’ll review and sign numerous documents, including your mortgage documents and the deed to the house. Be prepared to pay your closing costs and make your down payment, typically via a cashier’s check or wire transfer.
After all documents are signed and funds are transferred, you’ll receive the keys to your new home. While this day can feel overwhelming with all the paperwork involved, it’s also incredibly exciting—the moment you’ve worked towards throughout this process!
Pro Tip: Keep some champagne or other celebratory drink on ice. You deserve it!
What to Keep in Mind
The journey from contract to close typically takes 4-8 weeks, though this can vary depending on your specific situation and the type of mortgage you choose (such as conventional loans or FHA loans). Be prepared for potential delays or hiccups along the way—they’re not uncommon in real estate transactions. Stay in close communication with your realtor and mortgage lender throughout the process, as they can keep you informed and help resolve any issues that arise.
Remember, just because you’re a first-time homebuyer doesn’t mean you don’t have agency. You get to choose your team! With the right team and preparation, you’ll be empowered to navigate the complexities of buying your first property. Stay organized, be responsive to requests for information or decisions, and try to enjoy the journey. Before you know it, you’ll be turning the key in the door of your very own home. Good luck on your homeownership journey!