What happens after the home inspection?

As soon as you have finished your home inspection, successfully negotiated any repair requests, and both parties have signed off on those requests, you have formerly completed your "inspection period", whether it took you a couple of days or the full term of the inspection period (usually 7 to 10 days).  At this point, it is full sail ahead on the lender side.

APPRAISAL

One of the first things the lender will do AFTER you have successfully passed this period, is to order the appraisal. The reason this usually occurs AFTER the inspection period is because if you run into a snag during your home inspection or the repair negotiations and decide to exit the contract, the lender does not want you to be liable for the cost of the appraisal, which is somewhere between $350 to $450.  If things run smoothly, a good buyer's agent will alert the lender that the inspection period ended successfully as a cue to move forward and order the appraisal.  (Note:  There are times when the lender may move ahead with ordering the appraisal before the inspection has been completed, but these times would be relevant to the situation.) 

An appraiser is an independent player in your home equation.  Lenders can no longer talk with the appraiser or have any weigh in on which appraiser will be contacted to do your inspection.  This is now all done through a 3rd party order system, to make sure that there is no collusion with any of the parties involved.  The appraiser is randomly pulled from a pool of inspectors.  Once the appraisal is ordered, the appraiser will schedule a time to come to the property alone.  Buyers are not present for this. 

After the appraiser is finished, he/she will go back to the office to write up a full appraisal report, researching all the comps in the area and deriving what would be the most accurate market value for your home, usually based on the last 6 months of sales in the area.  If the appraiser's final value is equal to or higher than the sales price of your property, you are good to go.  If it is less than the sales price of your property, then we have a challenge.  Your lender cannot lend on more than what the fair market value is on the home you are about to purchase.  Therefore, your agent is notified right away and he/she would quickly notify the listing agent of the lower appraised value, usually providing the appraisal report (with the buyer's permission) to prove the lower amount.  The seller should eventually agree to meet the appraiser's price even though he/she may be reluctant to do so, as the only other alternative to lowering the price is to just not sell the home at all.  It's the seller's call, but of course, most sellers will move forward with the appraiser's value.  The home was just priced a little too high for the current market and the appraiser called it out.  As a buyer, you can rest assured that you are protected with a fair market value on your asset and will not be paying more for the asset than what it is currently worth.  Appraisals are a good protection for your investment.

If you are a cash buyer, then you are not using a lender so an appraisal is not necessary to meet the guidelines of any loan.  As a cash buyer you can forgo the appraisal if you want.  Some cash buyers are very much aware of what the fair market price might be.  But many cash buyers would benefit writing into their purchase offer a contingency for an appraisal that must be equal to or higher than the agreed sales price, just to satisfy themselves that they are, indeed, not paying too much for the property.  There are exceptions to this, especially in the case of multiple bids where the cash buyer would like to absolutely win the bid, having no contingencies, so the seller might choose their offer over another.   You can see that at this point, unless the cash buyer knows the market well, the seller benefits from this deal.  In this scenario, the seller can march onward to the closing table, as he/she does not have to wait for an appraisal to be completed to make sure their price meets market value, nor do they need to wait and see if their buyer can make it through underwriting successfully.  Cash deals can usually close in just a few weeks, in contrast to a buyer with a loan that will take 35 to 45 days to close on average.  You can see why the phrase, "Cash is King", rules in the buying market.

UNDERWRITING

When all your requested documents have been supplied to the lender, the lender will pass them off to the processor who begins to prepare the file for the underwriter.  If the processor finds a need for more documentation in order to satisfy known underwriting regulations for the loan, then you will be receiving requests for more information.  Don't be alarmed if your lender calls you more than once for additional documentation. The lender is just letting you know that the processor has been reviewing your files and is finding loopholes that need to be closed. 

When the processor is satisfied with a review of your file, it is handed over to underwriting where another review is made of all your documents. An underwriting is someone who is looking at every single piece of your documentation to make sure everything is accurate and acceptable to the loan type.  The underwriter is very well versed in all the latest requirements for your loan type and may find additional documentation is needed. Know that most lenders (not all) are preparing to sell you loan after closing to the secondary market and in order for that to happen, all loan requirements from that secondary market must be met or the loan cannot be sold. Therefore, if the underwriter sees that something else in needed in your file to complete the necessary requirements, you may eventually receive another call from your lender asking for specific items. You will need to comply with those requests in a timely manner.  Any delay on your part could possibly delay the closing.  I've seen buyers take a week or more to supply needed information.  Shortly after, the closing needs to be extended.  The buyer thinks it's because of the lender, but in reality, the buyer was the catalyst for the closing delay. Things cannot move forward without having every single piece of documentation needed.  On the absolute worse side, I've seen the seller get so frustrated with delay requests (both parties need to sign extension agreements each time closing is delayed) that he actually refused to sign another closing extension and the buyer lost out on the sale because of it.  Lesson learned....be diligent in following up with any documentation requested and don't be the cause of a closing extension.

Just to note, many buyers are surprised as just how much documentation is needed to satisfy loans in today's market. The more financial markers in your history (i.e. bankruptcy/divorce/school loans/child support. etc.) plus the type of requirements necessary for your loan type, the more documentation is needed.  The main point here is to go with the flow, supply all requested documents in a  timely manner, and know that this is the new normal. There are a lot of rules and regulations that have surfaced over the years for all the different loan types and I am amazed at just how much changing information the lenders have to keep up with on a daily basis. Kudos to all the good lenders in steering each buyer's ship to the final destination.  Over the many years in being a full time Realtor, I have been privy to many of the challenges these lenders face. It is not an easy task to get some of the loans through and many of the lender's efforts to get buyers through underwriting are never really known to the buyer.  Challenges do happen often in the lending world and it is considered just another normal day for the lender, but if you don't have a good and pro active lender, then some of the loans are subject to fall through the cracks.

TITLE

The title company has a lot of responsibilities. One of these is to make sure there are no liens on your property.  Any property that is transferred must be free and clear of any liens.  If they find a lien on the property, then they must work with the seller to resolve it prior to closing.  Sometimes, you will see on the settlement statement that certain seller liens are being paid off at closing from the seller's proceeds. This is quite normal. One of the obvious liens would be the seller's payoff of the current loan on the property.  However, another lien may be back taxes or back HOA fees owed. The point being, that all seller liens will be satisfied and taken care of before or at the closing table so the property is conveyed to the buyer free and clear of any title defects.

It is important to note here that trying to resolve lien issues can be very challenging at times for the title company and buyers may never know just how much time and effort goes into settling these challenges behind the scenes. Often times, a property may be transferred to another buyer just fine, without the title company involved ever finding anything wrong with that property.  However, when that buyer - who is now the seller - goes to sell that property, the next title company may find a lien that was missed by the prior title company.  There are all kinds of situations that can come up and some are quite challenging. In some cases, the lien is so challenging it cannot be remedied and therefore, the property cannot be conveyed which can be devastating for not only the buyer but the seller as well. These are rare situations, but most title companies have seen their share of challenging liens and are always pro-active in trying to get these resolved.

Title is also in charge of the escrow.  That means that all money involved with the closing flows through them. When you bring money to the table for your down payment as a buyer, the check or wire transfer goes into the title company's escrow.  When a seller receives proceeds at the closing table from their final sale with you, the check is written to them from the title company's escrow account.  The lender must fund the same escrow account with the full amount of the loan.  Broker commissions are also written from the escrow account.  Every single check that pertains to your closing is either deposited or written from the title company's escrow account to satisfy every single entry on the final settlement statement. The title company is the steward of all the money associated with the closing. 

The title company also has several other responsibilities, including gathering HOA payoffs, obtaining seller loan payoffs, ordering the deep prep, and generally preparing for when the lender gives them a final closing order.  With an exact closing date, the title company can prepare the final figures which constitute the final settlement statement the buyer and seller sign at closing.  Your lender and agent should be able to go through each line of the settlement statement and explain who is paying for what and define the actual expense. Everything must be transparent and recorded in full site on the closing statement. All this sounds simple, but there are so many things that title must account for and many times they run into several snags.  Just know that both the lender and the title company sometimes go through many hoops you will never know about in order to complete all the necessary tasks to get you to the closing table.  A good agent will stay tuned and check in regularly with the lender and your title company to make sure things are moving forward.  If there is an issue brewing, the agent should know and can alert you if it is significant enough to cause a delay in closing.

SUMMARY

So you see that there is a lot of activity happening behind the scenes after you have completed your inspection period.  Appraisal, title search and underwriting review are all very active at this point.  You won't be hearing much about all this...it will just seem that everything is quiet from your end and you may become a little concerned you are not hearing much about your loan progress at this point.  All of these processes do take time.  A good agent should be calling you periodically to let you know that everything is going OK and where you are in the process.  A good lender should also be touching base with you throughout the process.  Don't be alarmed if several of those lender calls are in regards to needing more documentation from you, as discussed above. Just comply with those requests in a timely manner so everything can keep moving ahead.  Always know that there is a team of people working behind the scenes to get you to your closing on time and there is a ton of moving parts that all have to be coordinated.

Moving forward, when all of this activity is completed, you will receive a clear to close from underwriting and you will be on your way to closing!

Questions? Just Ask!

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