So what happens after your purchase contract is signed?
You have found the perfect home, negotiated a price, and signed the purchase contract. Now the process towards closing begins, which includes inspections, surveys and a property appraisal. Understanding the value in this process will help you decide if you want options inspections or if going with bank required items will be enough.
Surveys establish the property lines for the land you are buying. While you are purchasing a home, the land that goes with it establishes much of its value. The survey will determine where you can build fences, add buildings or structures and what property you can claim as your own. The other benefit of a survey is that it will define if there are any existing encroachments. This means that a neighbor may have built something that is actually on your property. Fences are a common area of encroachment, where a neighbor’s fence is built beyond their property line. If this issue is not addressed, eventually the neighbor could own the land they have encroached on. Local and state laws determine the time period where an encroachment can result in the loss of property. Not all lenders require surveys to be completed, making this an optional closing cost in some cases.
Appraisals are generally ordered by the lender. The appraiser will view the home and then look at recent sales nearby to establish the value of the home and property. The appraisal will hopefully confirm the sales price for the bank. The appraised value can be particularly important if you are not putting money down or the seller is paying closing costs. If the home does not appraise for a high enough value you may be required to put more down in order to buy the home. A low appraisal may create an opportunity to renegotiate the price with the seller, though they are not required to lower the price.
Home Inspections are an essential part of buying a home. A general home inspector will generally inspect the home’s heating and cooling system, electrical system, roof and foundation, plumbing, and the structure of the home. It is recommended that you accompany the inspector as they walk through the home. This will enable you to discuss issues that are found determining its seriousness. Once the inspection is complete you might be in a position to request repairs, or renegotiate the price of the home. This will be dependent on the original contact and if there were contingencies around the inspection and home’s condition. Most banks require a home inspection.
Termite Inspection is generally required by the bank. Termites eat the wood in your home which can impact the home’s structure as most homes are framed with wood. This must be done by a professionally licensed pest inspector. They will look for any active infestations and if there are present, they will generally have to be treated before the closing can occur. The buyer is typically responsible for the cost of the pest inspection. If a problem exists, generally the seller must cover the costs of repair.
Professional Inspections may be warranted depending on the age and condition of the home. Things like lead and asbestos might be present on homes built before 1980. Professional inspections are generally not required by the lender. If you are planning renovations or upgrades these may be worthwhile to have before closing, as they could indicate expensive repairs are needed. Generally if the asbestos and lead are not disturbed they do not require removal.
Surveys and inspections are an important part of the closing process as they help you better understand what you are buying. The condition the home is in and where the legal boundaries for the property are. In some cases the lender requires the reports, in other cases you will have the option. It is best not to try and save money on closing costs by skipping surveys and inspections. Do so could result in expensive problems further down the road.
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