After negotiations and accepting offers it is now time to work on those contingencies you listed in the offer.
A. Removing Contingencies – Home inspections and research period.
Once your offer is accepted you will move through removing your contingencies. There are many types of contingencies that can be written in to an offer. Your agent may suggest a special contingency prior to home inspection and you will need to handle this first. Special contingencies could be anything from seeing the house a second time to having a specific issue addressed before paying for a home inspection. If there are no special contingencies you will move on to your general home inspection. This inspection is non invasive and should give you a great overview on the entire house. The home inspector may educate you about maintenance items and also point out things in disrepair. They are limited to what they can discuss, they can not give you quotes for work, determine if something is or is not to code but they have a pretty good idea and will point you in the right direction if something appears to be a major concern.
You should remember that all homes have issues; Even brand new ones. First time home buyers can find their first home inspection frightening. Check in with your agent. If your agent seems frightened or concerned you probably need to be more concerned. They have witnessed lots of inspections and many of the issues you are seeing are common on most homes. You agent should be able to help you find a professional who can explain costs and severity to you if you are concerned about something.
Beyond your general home inspection you may want to test and inspect for other concerns. Common inspection are Radon, Lead Paint, water quality, water quantity, air quality, Mold, asbestos and pests. You may choose to have specialty inspections done based on the results of your general inspection. Inspections are not mandatory, they are optional so don’t feel that you have to do them. We always recommend that you do a general inspection and discuss the results with your agent to determine if further inspections are needed.
During this inspection period, which is usually 7-14 days you would want to clarify anything that needs further research, I recommend doing as much research up front before submitting an offer but if something comes to light you do need to get these things worked out within the home inspection time frame. Research such things as plot plans on file, usage of surrounding land, easements, right of ways and other concerns you may have for the home or the property.
If any issues do arise with inspections and research you can renegotiate or walk away from the property. You will be able to retrieve your deposit but your cost of home inspection is a loss. If renegotiating you can do several things: ask seller for the cost to do repairs off the asking price, asking sellers to cover closing costs so you can hold on to your own funds to make repairs, or ask the seller to do the repairs themselves.
B. Remove Contingencies – Mortgage Contingencies and the appraisal
Once the home inspections are completed and you are satisfied with the outcome, it’s time to show them the money. You will move on to signing a purchase and sale agreement. At this time the remainder of the deposit is due. Purchase and Sales (P&S) deposits are typically a minimum of $1000 and as high as 20% of the sales price. This money will be deposited to escrow and go toward your down payment and closing costs, same as your offer deposit.
Once the Lender can get a copy of the purchase and sale they will order the appraisal. At this time you may also be required to submit massive amounts of documentation to your lender if you have not done so already. Current lending requirements are tight and the banks need to verify everything so be prepared to provide lots of statements and pay-stubs and letters of verification for numerous items.
Once the lender gets a copy of the appraisal back they can submit your file for approval. This is a waiting period. What seemed like a daily occurrence, maybe even for months with your agent, now is radio silence. If you miss hearing you agents voice, feel free to call them and say “HI” they probably miss you too. But at this point everyone is just awaiting the lender approval.
The appraisal hopefully went well. When the lender ordered your appraisal you would have had to pay them for their services, typically its directly to the lender. The appraiser then calls the listing agent to set up and appointment to view the home. Today’s appraisers are looking at all factors for value. They are also looking at conditions that do not violate safety, security or sanitary requirements for banks. With government backed financing the appraisers are far more strict than conventional or privately backed loans. There can be no peeling paint, distressed asbestos, missing stairs or railings, broken windows, or even dirty condition making a home unsanitary. Hopefully your agent was able to point out whether a home might have appraisal issues before you even write an offer. In cases like this the seller will have to fix these issues or you may need to change financing to a rehabilitation loan.
If everything goes well, the lender should be able to get you your commitment letter within a few weeks of submission of a necessary documentation. Certain loans such as USDA may have a second step that will add a week or two to the process. New Regulations such as the TRID will also slow down the process see our blog post about those changes here.
Next, your attorney performs a title search.