What Happens After the Purchase Agreement Is Signed?

 

 

 

 

When potential buyers submit their offers to the seller, they would hope their offer gets accepted before any other interested buyers do. Still, submitting the offer is just the first step of the process, and the buyer will have to go through a series of steps to close on the purchase. Here are the steps the typical buyer has to go through after the offer:

You’re Officially Under Contract

Whenever the offer gets accepted and the buyer and seller agree to sign the purchase agreement, the transaction becomes “under contract." This simply means to the other interested buyers that the property in question has found a potential buyer and is currently in agreement with the seller.

In the purchase agreement, there are several clauses or provisions there that both the buyer and seller have to fulfill; otherwise, the whole transaction falls apart, and the seller will have to start over again. These provisions are called "contingencies"; if one of them fails to be fulfilled, it gives a chance to other interested buyers.

 

Step 1: Earnest Money Deposit

Earnest money, or as most people call it, a “good faith deposit” is not the same as the deposit you put on the house but the initial deposit to express your seriousness in acquiring the property. Earnest money is not required by law but rather it is a tradition in the real estate industry that who ever puts down an earnest money is the one more serious over those who don’t have. This is in favor of the seller who does not know which ones are serious.

If ever the deal goes unsuccessful, the earnest deposit is usually returned to the buyer if, indeed, throughout the transaction the buyer has been in good faith; thus, the name “good faith deposit." However, there are some cases where the buyer backs out without a proper and valid reason. In this case, the earnest money deposit is forfeited as payment to the seller for the lost time and opportunity from other buyers.

 

Step 2: Home Inspection

The next step is for the buyer to conduct a home inspection by a licensed professional to determine whether the home has underlying issues that cannot be seen externally. Some houses may look good because of the fresh paint and newly cut bushes, but inspections will draw out issues that might be detrimental to the new homeowner's living experience.

During the inspection, the inspector will examine if there are major issues such as structural (cracks on the wall), electrical, roof, plumbing, or HVAC or signs of neglect, helping the buyer understand the overall condition of the home. The issues can also be a subject for renegotiation in the later part of the home buying process.

 

Step 3: Appraisal

The most important step in the home-buying process is to determine the actual value of the house which is what all lenders are going to require if you plan on having financing. This is done by a licensed appraiser, and the value can be determined using facts such as the condition of the house, location, size, and recent sales in the same vicinity similar to the property in question. 

Lenders require appraisal because they want to make sure they know the exact value of the property to protect their profits. They are not allowed to lend more than the value of the property and if in the future the borrower cannot pay, they will still have enough to avoid a huge loss.

Learn more about: What Happens If an Appraisal is Lower or Higher Than the Purchase Price?

 

Step 4: Finalizing Your Mortgage

Before the lender approves your mortgage, they will have to go through your overall financial health to make sure you have the capability to pay the mortgage you are applying for. This happens after the lender has confirmed the value of the property, and now they will have to check you, the borrower.

Employment, debts, credit history, income, and bank statements are material for approval. Make sure to prepare them to qualify.

 

Step 5: Title Search and Insurance

A title search is the checking of the public records in relation to the property, making sure that there are no unpaid taxes, existing liens, ownership disputes, or any claims against the property. The idea or goal is to make sure the the transfer of ownership to the new owner won’t have any problems in the future.

When the title search is finished, the title insurance is the next step, where it ensures the ownership of the property is incontestable. The reason for this is that not all issues are found in the title search, and title insurance is a way to protect the buyer where, for example, a distant relative claims ownership of the property. Instead of the buyer having to deal with these kinds of issues later on, the insurance provides protection.

 

Step 6: Closing Day

The closing day is the final step of the process of home buying, where the purchase is officially complete and the transfer of the property is finalized legally to the buyer or, in this case, the new owner. Aside from the keys being handed to the new owner, both the buyer and seller will review all the necessary documents and sign them as part of the transfer. The buyer also pays for the closing costs such as loan fees, title fees, taxes, and other related expenses.

 

 

 

 

 

 

 

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