In our November column, we detailed the first three steps of the escrow process once your offer has been accepted. These steps include: 1.) completing a physical inspection and any additional inspections (i.e. waste line scope, geological, foundation, etc.), 2.) obtaining a preliminary title report on the property, and 3.) negotiating any repairs or credits between buyer and seller. With those items now behind us, we will provide you with the following items to be completed as part of the transaction and prior to the close of escrow.
Step 4: Appraisal, which is generally ordered by your lender. After escrow opened, your lender would have required that all borrower financial documents be updated (i.e. tax returns, recent pay stubs, bank statements, credit report, etc.) if time had gone by since being prequalified for the loan. It is necessary to update your file as it may be possible that, from the time your initial loan pre-approval was issued, various aspects of your financial situation changed, and this could have an impact on your loan. The normal cost of a residential appraisal varies between $450-$550 approximately and is paid upfront. The appraiser will be assigned and then contact the listing agent to schedule a time to evaluate the property. Though the major factor in determining a home’s value is comparable neighborhood sales, the appraiser will also take into consideration other aspects including condition, floor plan desirability, view, and location. Once this has been completed, the appraisal report should be returned to the lender within 3-5 business days. If the value is determined to be at the purchase price, then no additional negotiating is necessary. If the value comes in below the purchase price, this may require negotiation on price with the seller. If the appraised value is not acceptable to the borrower, they have a few options. The buyer may accept the value and bring in additional funds if required or the seller can help bridge the gap and meet somewhere in the middle. Lastly, the buyer may decide that they are not willing to move forward due to the lower value and cancel the transaction. As per the Residential Purchase Agreement, the standard time frame for the appraisal contingency is 17 days from offer acceptance.
Step 5: Once the appraisal contingency has been removed in writing by the buyer, the lender is now prepared to issue final loan approval. A lender will take into account various considerations, such as the appraisal and the borrower’s financial status. It is very important that a borrower not make any large purchases or substantial financial commitments during the escrow process. Hold off on charging credit cards to buy appliances, furniture, cars, etc., as this can negatively affect your credit and loan status. (Oh yeah, don’t lose your job either.) Once escrow is closed, shop away but don’t lose your job if you can avoid it. The standard time frame for a buyer to remove the loan contingency is 21 days from offer acceptance.
Step 6: Verification of property condition and final walk through. Our recommendation is that the buyer visit the home to verify property condition prior to signing loan documents.
Verifying property condition is the last opportunity for the buyer to ensure that the condition of the home is unchanged from when their offer was accepted and to verify completion of any repairs that were negotiated as part of the sale. At this point, the current owners or tenants will have most likely vacated the property to allow for full access.
Step 7: The final and last steps of the escrow process is signing of loan documents, funding the loan and closing escrow. By this time, escrow has received loan documents from the lender and has scheduled a time for you to sign with a licensed notary. The notary will review the documents and ensure they are signed correctly. These documents are sent back to the lender who responds by wiring the funds for the loan amount to escrow. It is the buyer’s responsibility to wire the remaining down payment to escrow in order to satisfy the full purchase price amount. Once escrow has received funds, they will schedule the file for recording with the title company. The normal time frame for this process is as follows: sign loan documents, loan funds within 24-72 hours, and the transaction is recorded the following day with the County Recorders office by the title company. As soon as escrow has received confirmation from title that the property has recorded, the transaction has been completed.
Congrats, you are now officially a homeowner. Please feel free to let us know if you have any questions or need further information on any of the steps summarized in these past two articles. This process can vary depending on the transaction, and our description is only a generalization intended to help our readers understand the process. spt