The interval between when your offer is accepted and when you actually get the mortgage and possession of the home is called the pre-closing period or "escrow". It typically lasts for about a month, although the specific timespan depends on what closing date you and the seller agreed upon in the offer and how long it takes your lender to get ready for closing. There are several tasks you may need to complete during this period.
The Pre-Closing Period: Lender
During the pre-closing period, it is important to stay in contact with your lender and respond to any requests promptly. They may need additional information or documentation.
Even if you do not hear from your lender, it is a good idea to periodically check in and see if there is anything else they need. Ultimately, your lender has the final say in when you close, and if there is something missing, your closing could be delayed.
To avoid delays, or even a potential loan rejection, it is also important to avoid taking on additional debt or changing your employment status. Most lenders don’t just check your credit report or score when you apply for a mortgage – they also do it right before closing.
If you get a new credit card or loan a few weeks before closing or increase the balance on an existing card significantly, your lender may see you as too risky and cancel your approval, leaving you to scramble for a new lender or possibly not be able to complete the sale.
Likewise, your lender may call the employer listed in your application a few days before closing to verify that you are still working there. If you don’t have a job, you probably won’t get the mortgage.
The Pre-Closing Period: Homeowners Insurance
Before closing, you will have to purchase homeowners insurance, which covers damage to your home and possessions and provides liability protection if someone gets injured on your property and sues.
Generally, damage from an earthquake or flood is not covered, so if you are in an earthquake or flood zone, you may want to – or even be required to – buy special insurance. Your lender will let you know if special insurance is required. If you are purchasing a condominium, you can obtain condo insurance that provides personal property and liability coverage, similar to renters insurance.
When purchasing a policy, you first want to consider if you need anything above and beyond the standard policy. In addition to purchasing earthquake or flood insurance, you can add a personal article floater, which increases coverage on personal property not fully covered by the standard policy (this is often used for artwork, jewelry, and other valuables) or replacement cost coverage, which pays you the replacement value of stolen or destroyed items, instead of just the current cash value.
The Pre-Closing Period: Choosing a Homeowners Insurance Plan
You may want to compare how much the same policy costs with different companies. Most insurance companies give free quotes online or over the phone, making it easy to shop around and see who offers the best deal.
Whereas some people pay their car insurance in monthly installments, your lender will likely require you to pay for a full year of homeowners insurance upfront.
The Pre-Closing Period: Title Company/Attorney
Closing is typically handled by an outside party–either a title/closing company or attorney, depending on where you live. Your lender may allow you to select a company or attorney yourself or tell you who to use. If given a choice, you can talk to a few parties and ask what fees they charge, as well as where closing will be done. Some may require you to come to their office while others can send a notary public to you. Note, if you are using a title company to handle closing, then you will likely have to use the same company that you are getting title insurance from.
The Pre-Closing Period: Final Walkthrough
Right before closing and after the seller has moved out, it is a good idea to do a final walkthrough of the property. During the walkthrough, you should make sure that the seller left everything he or she agreed to leave and the property is in the same condition it was when you initially made the offer. This is the best time to bring up any problems, such as a large hole in a wall, since the deal has not yet closed. After closing, your options for getting the seller to do something are limited.
The Pre-Closing Period: Loan Estimate
Within three days of applying for a mortgage, your lender is required to provide you with a Loan Estimate, which, as the name implies, estimates your closing costs. It also provides a summary of your loan terms, such as the initial loan amount, interest rate, and loan type. Carefully compare the estimates in the Loan Estimate to the amounts in the Closing Disclosure.
Note on title search and title insurance: The title company searches through the public records to make sure that the seller is the home’s actual owner and there are no liens against the property. Your lender will require you to pay for lender’s title insurance, which protects them against loss in case the title company misses something in their search, but you should also consider purchasing owner’s title insurance, which protects you. If there is a lien against the property that is not paid off before you purchase the home, you become responsible for it.