Let's begin our Voyage of Discovery
Most sellers are required to provide you with a Property Disclosure Statement, three pages of teeny tiny type and checkboxes telling you most everything they know about the property—the good, the bad and the ugly. Your real estate agent will go over this important information with you. Within a certain timeframe, if you don’t like something the seller discloses to you, you can cancel the transaction. Sellers who never lived in the property are sometimes allowed to skip this form. Regardless, if the seller is aware of a problem, they are legally obligated tell you about it.
Bring in a professional
You don’t want to rely exclusively on the seller’s representations (you weren’t born yesterday, were you?), so now’s the time for some professional inspections. Your Realtor will assist you with arranging appropriate inspections by licensed, knowledgeable inspectors. The cost of these inspections is not included in our estimates, so budget separately—$600-1000 is a good ballpark. (By the way, this should be the only cost not included in our estimates.)
Negotiations: Round 2
There’s a pretty good chance the disclosures and your inspections will generate another round of negotiations with the seller. Maybe you’ll ask the seller to make some repairs or pay a credit toward your closing costs or even adjust the price. Your Realtor is your guide, but keep us posted too. We’ll help make sure any changes you negotiate maximize benefits to you and fit your loan (and keep you updated on the numbers).
What is an appraisal and why does it matter?
An appraisal is a professional opinion of the value of the home you are buying. We will order an appraisal from an independent, licensed appraiser. The appraiser seeks out a handful homes that have sold recently, nearby, and are as similar as possible to the home you are buying. These “comparables” or “comps” are used to generate an opinion of the value and marketability of the property you are buying.
If the appraiser finds the property needs any repairs to be safe, habitable, marketable or meet lending guidelines, the report will be made “subject to” repairs. Required repairs generally need to be completed prior to closing.
Scheduling the appraisal
The appraisal is the most time-consuming part of the loan process. We will let you know the date by which we need to order the appraisal and send you a copy of the report once we receive it. When we order the appraisal, we will collect a deposit from you equal to the anticipated cost. This deposit will be credited toward your costs at closing.
If you boil it down, transferring the title to the property from the seller to you is pretty much the entire point of this exercise. And to your lender, the title is the security for the loan. Title reports can make for dry reading but they are quite important.
The title company researches the property and issues a preliminary title report or “prelim”. This report includes all available information on the state of the title, listing liens and exceptions and providing copies of any relevant documents (neighborhood bylaws, covenants, CC&Rs, easements and more).
The prelim also contains a judgment and lien search on you. If you receive a form quizzing you about your residence history and identity, send it back right away (especially if you are a Smith, a Garcia or a Johnson). The title company needs it to complete your lien search (and make sure you’re not the Smith, Garcia or Johnson with tax liens, back child support or the like).
Read the prelim and ask your Realtor questions about anything you don’t understand. If there is anything really interesting or odd, you should talk to the title company or an attorney. Interpreting the legal nuances of your title report can go beyond the expertise of your Realtor (and your lender).
What about the cost?
Our cost estimates show the cost of title insurance in a few chunks: Owner’s coverage is usually paid entirely by the seller. Lender’s coverage is usually split 50/50 between you and the seller. You pay the cost of ALTA endorsements. If your home is brand new or newly remodeled you may also pay for Early Issue title insurance.