Once your offer has been accepted, closing the loan involves three stages: the home inspection (if you haven’t done one already), the appraisal and underwriting. Knowing how these pieces work together can help you prepare to close your loan.
The Home Inspection
Once you've had an offer accepted, it's time to schedule your home inspection. While this step is usually not a requirement for getting a mortgage, it's a way to protect yourself from buying a home that will cost you more money than it's worth. It's your job to find an inspector and pay for the inspection. However, your real estate agent may be able to help with this. They can recommend an inspector and possibly even set up the inspection for you.
A typical home inspection will cover surface-level elements of the home such as structural components, outlets, heating and cooling systems, appliances and more. However, the inspector can't check out aspects of the house that aren't easily accessible or visible. For instance, you'll need a specialized inspector to identify lead, mold, asbestos, radon and pest problems.
Be sure to attend your inspection and ask all the questions you can think of. This is your chance to walk through your new home with an expert. They can tell you about the red flags and make recommendations for what to fix first and how to go about it.
How much does a home inspection cost?
The average home inspection costs around $315, with condos and small homes under 1,000 sq ft. costing as little as $200. Larger homes over 2,000 sq ft. will run $400 or more. Radon or mold testing will It's important to remember that you get what you pay for; inspectors have varying levels of knowledge and experience, and they required to be licensed. If you opt for an inspection or test that's not part of a standard home inspection, such as a radon test, you'll pay an additional charge.
If your down payment is less than 20% you might not need an appraisal. The mortgage is insured, and the lender uses an Automated valuation model to assess the value of your home based on previous sales.
Appraisals are a required part of the home buying process if your down payment is 20% or more. The appraisal protects both you and your lender from paying more for a home than it's worth. Your mortgage agent will order the appraisal for you, although it's important to note that the appraiser is always an independent third party. Appraisers can't be affiliated with you or your mortgage company. This ensures the appraisal process is fair.
Appraisal believe it or not is a condition of financing one should be scheduled as soon as the offer has been accepted. If you waive condition and appraised value of the house comes back higher than your purchase price, good news! You just snagged a deal and some additional equity in your home. On the other hand, a lower-than-expected appraisal value can cause problems for your mortgage process since your lender will never lend more than the appraised value or the purchase of the property (whichever is lower). If your appraisal comes back low within the condition of financing period (usually 5 business days), you have a few options:
- Bring more money to the table to make up for the difference in price
- Negotiate with the seller to lower the home price
- Contest the appraisal if you think there's an error in the report
- Walk away from the deal
How much does a home appraisal cost?
You can expect the appraisal fee to be between $300 and $500, although this fee can vary based on the type and location of the property. You'll pay more if you're buying a multi-unit property, for example, or if you live in a remote area that the appraiser must travel to.
While all of this is happening, your mortgage company will work on underwriting your loan. This is the process of verifying your income, assets, debt and property details to issue a final approval for the loan.
Much of this happens behind the scenes, but your mortgage broker may ask you for additional documents during this time. For instance, they could ask for documentation that shows where deposits in your bank account came from or provides proof of tax information. It's important to stay on top of your lender's requests to make sure you don't slow down the loan process.
What You Can Do to Ensure Your mortgage Closes
The biggest thing you can do to make sure you don't run into problems is to avoid any major financial changes or spending. Don't apply for new credit lines or loans, and don't make purchases like furniture even on a lay away plan as that might change the qualification numbers.
Taking on new debt changes your Total Debt ratio (TDS), a key factor in determining the loan amount you can get approved for. If your TDS increases, you may be able to qualify for less – which could be a problem depending on your home price. If you push your TDS past about 42%, it's possible you won't qualify for a mortgage at all.