| Action | Step
| Issue |
Pre-Approval letter
(Buyer Action) | 1. | Before starting the search for a home you probably wanted to know if you could borrow the money, and if so exactly how much you could borrow (and afford), the type of loan and the payments you could expect. The mortgage loan originator will also discuss how much cash you will need to close. Required by Real Estate Settlement Procedures Act (RESPA) the lender will provide you a good faith estimate. The estimate will include an itemized list of fees and costs associated with your loan and should be provided within three business days of applying for a loan. |
Loan Approval
(Lender Action) | 2. | The loan company will qualify THREE things during the closing process. First they will qualify the borrower by evaluating their credit, income, and debt. They will use any number of reports to include a loan application which the borrower(s) will complete and provide to the lender. The borrower(s) will be required to sign the loan application again at closing further stating the information is still correct and accurate on the day of closing (i.e. probably not a good idea to buy the Lexus until after you close). Although an initial credit report was probably accessed in step one the lender will obtain a composite report extracted from 2 credit reporting agencies. The loan company will further qualify the house (step 3) and the title (step 4, 10). |
Appraisal
(Lender Action) | 3. | The lender qualifies the house by requiring its value be determined by a disinterested person who has special training called an Appraiser. Based upon the type of loan (VA, FHA, Conventional) an Appraiser is selected and provides an appraisal to the bank and the buyer. If the value is at the contract price or greater the process continues. If the value is less then the contract price, the bank will provide a loan based on the appraised value NOT the contract price. In the purchase contract there is usually a paragraph which specifies the actions of the buyer and the seller if the appraisal is less then the contract price. This step can become a "show stopper" and is usually performed before the remaining steps. In some cases the Appraiser may also note repairs required to be accomplished before closing which will also necessitate an additional inspection to verify their completion. |
Attorney Selection
(Lender Action) | 4. | Although the Attorney is paid by either the buyer or seller the attorney actually works for the lending (mortgage) company who provides the attorney their closing instructions. The bank requires Mortgage Title Insurance and the closing attorney or Closing Title Company (also referred to as an escrow company) will provide this insurance. The mortgage company will approve the selection of the attorney or closing company. Prior to closing the buyer should educate themselves on Owners (buyers) title insurance. The question will be asked during closing if this coverage is desired by the buyer(s). (see step 10 below) |
Home Inspection
(Buyer Action)
| 5. | A home inspection is recommended and more information on local home inspectors and their equipment can be found on this web site. Prior to the home inspection the buyer should require from the seller a "Property Disclosure". |
Survey
(Lender Action) | 6. | Generally no longer a requirement of the lending company you should further discuss obtaining one with your agent and other advisers. It is generally advised to obtain at least the previous survey if one is available. If you do not obtain a new survey you will be required to sign a statement relieving the lending company and title company of any future liability. |
Termite Inspection
(Lender Action) | 7. | The mortgage company and possibly the purchase contract will require an OFFICIAL ALABAMA WOOD INFESTATION INSPECTION REPORT (pdf link). If active termites (or other wood destroying organisms) are found then a treatment will be required and possibly a structural inspection to show the damage is not a factor in the valuing of the property. More information can be found on this web site's Termite Page. |
Property Insurance
(Buyer Action) | 8. | The buyer will need to select an Insurance carrier. Difficulty will occur if the buyer has made previous insurance claims. The insurance industry keeps records (similar to your credit file) on properties showing all recent claims. The owner of the property can access this report called the CLUE report along with the insurance company you are using to provide home owners insurance. |
Lien/Mortgage
Pay Offs
(Attorney Action) | 9. | The closing attorney or escrow agent will be required to make sure all lien payments which have been recorded have been paid or will be made as part of the closing. Sellers will need to provide mortgage information to the closing attorney so the correct pay off information can be obtained. from the mortgage company. |
Title Evaluation
(Attorney Action) | 10. | The attorney will insure good title by providing title insurance. The lender will require the mortgage amount which is borrowed to be insured with Mortgage Title Insurance. This does not protect the buyer who may be providing some of their own funds to purchase the home. If this is the case then Buyer's Title Insurance should be obtained. Since the attorney is paid to underwrite or provide the insurance there is a reluctance on their part to ether recommend or not recommend. The buyer should investigate this insurance. |
The Closing | The closing will usually occur in the Attorney's office with both parties buyer(s) and seller(s) being present Photo ID (drivers license) will be required to provide proof of everyone's identity. A lot of documents will be signed but the document which includes all the fees and costs along with an accounting of the closing will be detailed on a standardized document, referred to as the HUD-1 (pdf file) (New 3 Page Document 2010). The HUD-1 is an out growth of RESPA (Real Estate Settlement PLrocedures Act) and is signed by both parties with a signed copy provided to all parties to include the loan company (which has previously approved the document) the attorney, and the real estate agent(s). After closing and the exchange of keys or possession arrangements the Attorney will record the necessary documents (Deed and Mortgage) in the county court records providing constructive notice of the new owner. The recorded deed will be mailed to the buyer and upon receipt the buyer should have their "homestead" recorded using the "stamped deed" to insure a reduced tax assessment. This is accomplished at the Judge of Probate's office and is a free service. |
| The above has been reviewed by Monica G. Hammett to insure the information's accuracy. Ms Hammett is a local real estate attorney who has been in the real estate "closing" business for over 20 years. Her office is located at 1310 Old Oak Place Montgomery, Alabama and she can be contacted at (334) 356-0836 |