Offer Accepted! Let’s Close the Deal!
CHASE Homeownership Podcast
BEGINNER TO BUYER — EPISODE 9
I was thrilled to be asked to be an expert on the Chase homeownership podcast to shed some light into the closing process for first time home buyers. Take a listen and catch the gems that will help you on your home buying journey!
This transcript begins at 9:40
Nadeska Alexis: Alexis, I've been having a lot of conversations with first-time home buyers, and they are trying to wrap their heads around this entire process. I think it's enough for them to try to understand how hard it is to find a home they like, and to even get that offer accepted. Once you get through that initial stage, I'm wondering if you could give a sort of a very broad overview of the closing process, like the big bullet points of what that actually entails.
Alexis Hart McDowell: Absolutely. Home buyers, especially first-time home buyers, are so excited, but they are so anxiety-ridden at the same time because this is the biggest financial purchase of most people's lives. When they get that clear to close, that's the number one step that we have to have before we hit the closing table, the clear to close from their mortgage lender, then it's a clear shot to the closing table. When they receive that, we start to schedule the closing, meaning we work with the buyer's attorney, we work with the seller's attorney, and we work with the title company if you are in a title company closing state. We set up a date. You want to make sure that the seller has completed all of their obligations to you. For example, if they agreed to do some repairs on the house, you want to make sure that's done, and then you want to prepare for closing.
You want to make sure that your lender has everything that they requested of you, and you want to make sure you have the right amount of money that you need to bring to the closing table. And then trust your professionals, enjoy your closing, sign the documents, and get the keys to your brand new home.
Nadeska Alexis: You did mention that there are a couple of attorneys involved. At which point should a home buyer be involving their own attorney in this closing process?
Alexis Hart McDowell: I say you need to involve an attorney at the very beginning. How about before the beginning? It's about having the best team for you, and you want to make sure that you are vetting and have the right teammates. Not every attorney is going to communicate the way that you want to be communicated with. Not every attorney is going to be a teaching attorney. Some people want more education than others. Some aren't going to be as responsive. You have to find the right teammate for you and involve them at the very beginning, at the contract stage. You want to have your team, which is your real estate broker, your attorney, and your lender and your home inspector all together and working together for your greatest outcome, which is to get you into this house.
Nadeska Alexis: That's great advice. Do you have any recommendations for how a home buyer could go about finding the right attorney for their team?
Alexis Hart McDowell: Yes. I have some great pointers for people who are looking to vet the professionals for their team. First and foremost, check out referrals. Who have your friends, family, and others used, and who want to give a good recommendation to you? We all know that we've worked with professionals that we absolutely loved and we will refer or them to everyone. And then we've also worked with professionals that we didn't have quite such a good experience with, and so we are not going to send their name on. So number one is referrals.
Number two: reviews. Definitely Google the person; check out their reviews. What are other people saying? How are other people experiencing that professional service? And then the last one is go to their website; reach out to them. Do they have a free download so that you can see how they communicate? What type of information are they putting out there? Schedule a free consultation with them so that you can have a one-on-one conversation with them and see if you enjoy speaking with them. See what additional information if they are open to sharing with you. See if that's going to be a good relationship for you, if it's going to be a good interaction. All of those techniques and strategies will help you find the right professional for you to ensure that you are building the right team so that you can have the success of moving into your first home.
Nadeska Alexis: There is honestly nothing more frustrating than being so excited your first time and constantly waiting for updates and realizing you have to wait days and days to hear back from someone on your team. So you do want to make sure that you like their communication style. What does the average timeline use you look like for closing, and are there things that happen or can happen that can make that timeline vary?
Alexis Hart McDowell: Oh, absolutely. The contract date to closing can be anywhere between 30 and 50 days, but the actual closing itself is probably an hour to two hours. But 50/60 days is not unheard of at all. Some things that may extend the contract is if the buyer's paperwork isn't together, if their lender isn't turning around their file fast enough and getting it to underwriting, if they are coming back requesting additional documentation. Another thing that can make the timeline go longer is if the seller isn't doing what it is they are supposed to do. For example, with some loans, like an FHA loan, they may have to do repairs required by the appraisal. If the seller is dragging their feet, that's going to extend the timeline for you to get to the closing table. There are a couple of different things that can happen in that case, but on you are looking at 45 to 50 days.
Nadeska Alexis: Okay, so 45 to 50 days, if all goes well. And like you said, there are variables and with other humans involved, you usually cannot control their actions. But for the things that you can control, you mentioned paperwork. There certainly is a lot of paperwork involved in closing. What kinds of paperwork should buyers be prepared to have ready to speed up the process on their end?
Alexis Hart McDowell: In order for them to speed up the process, you want to know what your lender requires before you even start with your lender. Most lenders are going to require similar documents: your W-2s, your tax returns from the last two to three years, employment verification, and bank statements. You want to make sure you have all of those items readily available and any other document that your lender is going to require. Additionally, when it's time to hit the closing table, you are going to want to have an unexpired government ID and, or a passport, because they need to verify that you are the person taking out that loan in order to notarize your signature. Those are the very basic items, but you can't imagine how many deals get slowed up because the buyer didn't have those basic items together.
Nadeska Alexis: Okay. That's your list of paperwork that you should always have ready. Another thing I've noticed in my conversations with first time buyers, and I had the same experience as well, you start looking for a property, it takes you some while to figure out there are things like property taxes that you didn't consider at first, and then there are closing costs, which also just really hit you like a ton of bricks sometimes. Can you tell us what closing costs are? What is this money that we are paying to finally get our keys?
Alexis Hart McDowell: Closing costs are all of the fees and expenses associated with not only your loan, but the title company, if you are in a title company closing state, transfer taxes, government fees. All of those fees show up on your HUD-1, also known as your settlement statement, your closing statement, all those different names for that one document. Everybody's fee shows up on this document, this closing statement. So your lenders fees are on there, any points, any additional credit reporting fees, appraisal fees that you didn't pay in advance or outside of closing are all going to show up on the closing statement. Transfer taxes, as you've mentioned, also any credits that the sellers owe to you and any municipal or government fees as well.
So recording fees, you've got to record that mortgage in that deed. Those fees are going to show up on the closing statement as well; not to mention title company fees. If you are in a title-company state, they will charge for the title insurance. They will charge to have their person handle the closing. There are a lot of different fees that show up on a closing statement.
Nadeska Alexis: So exciting, all of these fees, right? I mean, can any of these fees usually be negotiated?
Alexis Hart McDowell: You know what? Actually, some of them can, but most of the ones that can be negotiated are with your lender. If your lender is late or you didn't have a good experience through the process, you can mention that to your lender and ask for a credit. Typically, your best bet is going to be with your lender; not all fees though, but just some of them.
Nadeska Alexis: That's good. So you do have a little bit of negotiating power at least. Would you say that most fees are pretty standard or is there anything that you should look out for that maybe could end up on your HUD-1 that shouldn't be there?
Alexis Hart McDowell: Most fees are standard; however, the thing that you probably want to look out for is making sure you are not charged a fee to pay the back taxes owed by the seller. The seller has to give you clear title, and sometimes you may find that the back taxes of the seller are being paid, but then they are charging you the fee for it. That's something to look out for as well.
Nadeska Alexis: Okay. Escrow is also one of the terms that come up pretty early in the closing, again, something that just as a normal person living life, you don't really have to know about. Can you explain what escrow is?
Nadeska Alexis: Yes. Escrow is simply a third party who is holding funds and is going to disperse those funds according to how the buyer and the seller agree. If you owe a hundred thousand dollars on this house, you are going to put a hundred thousand dollars into the escrow, and then once all of the fees are paid, then that is what the seller gets. So it's a holding place for money.
Nadeska Alexis: That's reassuring, right? You are not handing the seller such a big check up front and then have to wait 50 days for closing anyway. So it's a bit of reassurance.
Alexis Hart McDowell: It absolutely is, and it is probably one of the ways that makes a buyer feel okay with moving forward. I mentioned that there are title-company states; that would be your escrow holder. All the money goes into the title company and they print out the closing statement and disperse the money as it is supposed to be. But then you have other states that don't require a title company, in which case you will use a third-party escrow holder, and they are going to perform the same function. So the buyer can feel secure that, hey, I don't have to sign off and release these funds if this isn't what I agreed to or what was promised to me. And so you don't have to worry about someone running off with the money because you have to sign to release that.
Nadeska Alexis: Which is good. I think we all love that reassurance, because there are some pretty big checks that you are writing. You also mentioned title, another term. As a previous renter or if you are living at home with family, it's not something that necessarily registers to you. So what exactly is a title?
Alexis Hart McDowell: Title comes in two forms. I'll start with the first one. Title can mean title to the property. Who owns that property? Do you own it? Do I own it? Do my mother and father own it? That is the title holder. That's one aspect of title. Another aspect of title could be title insurance. Title insurance is insurance that protects not only the buyer or the borrower, but also the lender from any defects on titles. It's an insurance policy to make sure that your title to the property is unencumbered. That's the word in the industry.
Nadeska Alexis: Once you get through all of these initial things with your lender, your attorney is going to check on the title, insurance and things like that, and you get to the closing table. You are signing a lot of documents. There are so many documents. Can you tell us what are actually some of those things that you are going to be signing on that final day?
Alexis Hart McDowell: Oh my God. Sometimes the stack is so big that it can be very intimidating, and then sometimes the stack can be very manageable. It really just depends on your lender. But the overall thing that the buyer needs to know is that all of the documents have to be signed. I know as I've been in closings and the buyer is like, "Wait, can I not sign this? Can I not sign that?" It's like, no, it doesn't work like that. This is all required by your lender. Otherwise, they are not going to give you the money.
Some of the most important documents that you will be signing, of course, is the mortgage. That puts the lien on the property and secures the promissory note. The note is what you are borrowing from your lender and you are promising to repay. Those are the top two documents that you will be signing, but you will also be signing some other things like environmental indemnities. In case there is anything going on with the property, your lender isn't going to be responsible for that. All of the other documents, including your closing statement, you will sign that as well. All of the other documents are going to be required by your lender, and some are very lender specific. The lender should give you a list of any and all documents that they want you to sign.
Nadeska Alexis: Okay. I think, to your point, like the sheer volume of some of those documents can be a little bit overwhelming and that's when people start wondering, do I have to sign all of these? At that point, is there anything, any sort of fine print that you should really, really be paying attention to, something that people can overlook, or again, are these all pretty standard at this point since you are so close to really just putting your signature down?
Alexis Hart McDowell: Well, most things are standard. There are some key things that every buyer really needs to look out for, and especially their attorney. That's going to be your interest rate. You want to make sure that is what you agreed to. If you purchase any points to buy down that rate, you want to make sure that is taken into account as well. You also want to make sure that, of course, the purchase price is correct. Sometimes dealing with humans, a $200,000 loan can turn into a $208,000 loan, because an eight and a zero sometimes can get mixed up. You definitely want to make sure your purchase price and your interest rate are correct. You also want to make sure that the type of loan that you are taking out is represented as well. You may think you are in a 30-year fix and it could show up as an eight in one ARM or a balloon or a 15 year. If that's not what you wanted, then you need to speak up loud and clear at that point saying, "This is not the loan that I bargained for." Those are some of the top things that a buyer needs to look for.
I would say the last thing is the legal description. I know that buyers are like, "Well, I don't even know what a legal description is. I don't even know where to find that." Don't worry; your attorney and the title company should be taking care of that, but it never hurts to have a second set of eyes or third or fourth on that legal description to make sure that it accurately describes the property that you are buying. Case in point, sometimes with a condo, you may be deeded a parking spot, but maybe in the legal description, it's parking spot 10 when really you are supposed to have parking spot 12. It's just little things like that, that can make a difference.
Nadeska Alexis: Wow. Thank you. That's really helpful. My heart would sink to my toes if I signed in and realize I'm just overpaying for a house that we were just in closing for, for 50 days. Alexis, thank you so much. I guess my final question to you is just what advice would you give to first time buyers? They are brand new to this process? They are feeling really intimidated by the whole thing. What would you tell them?
Alexis Hart McDowell: I would tell them, educate yourself. Knowledge kills fear. That's what I tell people: Knowledge kills fear. Go to as many home buyer workshops as you can. They are free. They are on Zoom. They are back in person now. Definitely attend the home buyer's workshops so that you can get a level of comfort with not only the terms, but the process of buying a home. And then the next thing is, get the right professionals on your team, from your realtor, to you attorney, to your lender, to your home inspector, then trust those professionals to do their job. You don't go in and tell a surgeon how to cut on you. So trust the professionals that are going to represent you in this process, and get the right ones on your team. All of those things will help to de increase and even eliminate your level of intimidation and anxiety, and you will have a great home-buying experience.
Nadeska Alexis: Amazing Alexis, thank you so much information. We ended on such a positive note. We appreciate it.
Knowledge kills fear. I love that little jump from Alexis. She emphasized that it's important to edge yourself before you go to the closing table, so you can sign all of that paperwork with confidence. And if something unexpected does come up during closing, don't hesitate to speak up. Once again, your team is essential during this step. After those closing documents are signed, you've officially graduated from homebuyer to homeowner. Sit back and let that one sink in. Walking through my new home for the first time after closing, knowing that it was actually mine is one of the best feelings I've ever had.
I know we've spent a lot of time preparing for this big moment, but there are still a few things to keep in mind as a new homeowner that will really set you up for long-term success. We will cover those details on our final episode. Until then, you can check out beginnertobuyer.com to learn more. Beginner to Buyer was created by magnet media and chase home lending. Our executive producers are Kyasha Burns and Akash Vaswani. Our lead producer is Anna Mclean. Our audio editor is Will Watts, and Kelly Drake is our production assistant.
If you need help buying, selling or investing in real estate, reach out to the Law Office of Alexis Hart McDowell. We want to help you with your real estate goals! Schedule a consultation here.