In Part 1 and Part 2 we started working with a real estate agent we vibed well with, we got a pre-approval letter so that we know exactly what we can actually afford in a house, we searched for and found the place we wanted, and we reached a deal with the seller to buy it.. Whew!

We are coming down the "home" stretch now, and the good news is much of the heavy lifting on your part is already done. Moving right along...

Step 5

LET YOUR TEAM WORK FOR YOU

You’ve reached a deal. Yay! Now what?

At a certain point in the transaction, your job becomes significantly more hands off. You should still be in touch with your agent and aware of what is going on in general, but most of the heavy lifting is going to be handled by other people, namely attorneys, title companies, inspectors, and appraisers. Some of this will be a step at a time while other things will be happening simultaneously. A few of the key people who will be playing a role in the transaction are:

  • Attorney

The attorney’s job will be to make sure all the t’s are dotted and the I’s are crossed, or, however that saying goes. They will evaluate the contracts and paperwork, make sure everything is in good order, and ensure your best interests are taken care as far as those things go. The attorney review period is another one of those common contingencies we talked about last time. 

  • Inspector

Assuming you have an inspection contingency in your contract (which in most cases you probably should), this is where the inspector would come in and, well, you know... inspect. The importance of this really can’t be overstated, as you want to know what all your hard-earned money is actually buying. The inspector will evaluate and report on the quality and useful life of things like structural integrity, plumbing, mechanicals, roofing, exterior/interior, electrical systems, and about anything else you can think of. It will cost you a few hundred bucks (budget somewhere between $300-$600), but that’s a drop in the bucket compared to what it could save you. This is especially true in Chicago where very old buildings are commonplace.

If the inspector finds anything significant, you can activate the contingency and back out of the deal or you can bring the issues up to the seller. They may either fix the issues themselves or give you a credit off the purchase price. The latter is more common since a. the seller is already selling this place and probably doesn’t want to deal with repairing it, and b. it is in the seller’s best interest in case the cost of repairs goes above the expected amount. Just something to be aware of.

Be aware that this only applies to "big" issues that were previously unknown or undisclosed. This contingency is not meant to be abused as an opportunity to renegotiate the agreed upon sales price. New paint, burnt out lightbulbs, and stains on the carpet or not typically grounds for raising a fuss. Issues with the electrical system, the foundation, or underground plumbing, however, might be.

  • Lenders/Appraisers

If you followed step 1 you already have your pre-approval letter, which is cool and all, but unfortunately that is not where it ends as far as actually getting the loan. You still need to submit a full mortgage application, which shouldn’t be too dissimilar from the process of getting pre-approved.

Additionally, you’ll need to have an appraisal done on the property. The job of the appraiser is to make sure the property you’re buying is worth what you’re buying it for. The phrase “something is only worth what someone else is willing to pay for it” only goes so far. That line gets crossed when you’re using someone else’s money. If you agree to pay $200,000 for a house, and it is found to only be worth $100,000, no reputable lender should give you that loan in case you default on it and leave them with such a liability. In this case you would need to either negotiate a different sale price, pay the difference in cash, or move on to a different property.

Assuming your credit is still good (don't make any big purchases on credit until after closing day!), the appraisal is right, and the underwriters like what they see, you’re onto the title portion of the show.

  • Title Company

As the name might imply, the title company will be going to work on making sure you have a “clean title.” This may sound weird, but, buying the deed on a piece of property does not actually “guarantee” you have the legal right to own it. The person you bought it from may never have actually had the legal right to own it. The person they bought it from may not have either. The person before them... well, you get the idea. Title companies and attorneys can only go off what is found in historical public records of the ownership of the property, known as the “chain of title.” There may be a chance that the chain is broken somewhere along the way and somehow a transfer wasn’t properly recorded, or somebody got skipped. This would result in a “cloud” on the title and that would have to get resolved before the transaction could continue.

Another reason there really is no such thing as iron clad proof of ownership is that somewhere along the way there could have been things like forged documents, sellers (“grantors” if you want to be fancy) who did not have the legal capacity to sell, incorrect marital statements, and many other issues that would be impossible to know from a simple search of the public records.

You might be saying “my place is new construction, I’ll be the first owner, I’m good on this part for sure!” To that I would say, yes, the walls, floors, and ceilings you’re buying may be new, but the land it’s built on has been around since the beginning of time and has likely had more owners than just you or the developer.

In addition to potential issues with ownership, the other big issue to be aware of during the title search phase is that of “liens."

Liens are like debt obligations attached to a piece of property. If you are making car payments, you have a lien on your car to secure the loan your paying on it. Same thing goes for real estate, there is just a bit more to it. There could be mechanic's liens (debt owed to a contractor who did work on the property previously), mortgage lien (debt owed to a lender on the property), and tax liens (debt owed to the government for taxes) just to name a few.

The kicker when it comes to liens is that they go with the property, not the owner. So, if the previous owner racked up a fortune in unpaid taxes and sells you the house, that is you stuck paying the bill. This is why knowing if there are any “recorded” liens on a property is so essential. (Why the quotation marks around “recorded” you ask? You’re so observant! That’s because, like clouds in the chain of title, there is always the possibility that a lien wasn’t recorded that could still pop up and attempt to be enforced.)

This may all sound pretty scary, and if you don’t treat this step with the respect it deserves, it can be. Luckily, you hopefully have a solid attorney or title company turning over every stone they can to find potential issues. When they are finished with their opinion of title status, the next step is often to purchase “title insurance.”

Mmm, title insurance... Doesn’t that sound sexy?

Probably not. But it should, because it will protect you from all that potential B.S. that I mentioned before. Plus, most lenders require it, so there’s that. The premium for title insurance is typically paid in one installment at closing.

Hey speaking of closing…

Step 6

CLOSING!

Here it is! The moment you’ve been waiting for! You wake up the morning of the day of closing, the sun is a little brighter, the birds a little chirpier, the coffee tastes a little better. In fact, you don’t even need coffee today, you’re so excited to close on this property that caffeine has become optional!

So, what is going to happen today? What do you need to do and be aware of to ensure this goes smoothly?

Essentially at this point all you really need is a sound mind, a working hand, and a full bank account because you will be signing lots of documents and spending some money.

The closing can take place anywhere, most commonly at the title company, an attorney’s office, or one of the agencies involved. Present parties typically include the buyer and seller (or their legally appointed representatives), the agents, the attorneys, representatives from the lending institutions involved (it is likely that this sale will result in the seller paying off the rest of their mortgage, so that lender wants to be present as well), and someone from the title insurance company.

By this point most of the heavy lifting has already been done, so it’s just a formality to put pen to paper and make everything official (though even most of that has likely been done electronically).

This is where the rubber meets the road in terms of financing. You’ll need to bring the rest of the down payment (the earnest money you’ve already supplied will be applied to this) and take care of the closing costs.

 

Ahh, yes. The closing costs. Everybody’s favorite part. Some things to expect as far as closing costs (many just depend on the purchase price, the vendor, and the situation):

· Chicago Transfer Tax

o $7.50 per $1,000 of purchase price

· Title fees

o ~$500-$1,200

· Inspection

o ~$300-$600 (actually taken care of prior to closing, but still a cost)

· Attorney

o ~$400-$800

· Lender fees

o Fees to originate the loan. This is the appraisal, documentation prep, title insurance, prepaid interest, etc.

 

Your lender will give a Good Faith Estimate of what your closing costs will be with them and anything else your loan might entail, such as private mortgage insurance (if you are putting less than 20% down), and other loan origination fees.

Pay some people, sign some papers, get the keys, and congratulations! You are now the owner of your new home.

 

Enjoy owning a part of Chicago!