July 26, 2023
So You Bought A House! 11 Things That Happen After Your Offer Is Accepted
House-hunting is an exciting time, especially for first-time homebuyers. You made it through the lender pre-approval process and you're happily checking new home listings, touring properties, and waiting with bated breath to hear if your offer is accepted. Then your agent calls and says, "You bought a house!" and you're celebrating and popping the top on the fancy stuff!
But you haven't bought a house - not quite yet. Once your offer is accepted by the seller, there are still many T’s to cross and I’s to dot before the keys are slid across the closing table. Knowing exactly what happens after an accepted offer ensures you don't encounter any surprises.
Your due diligence period is usually 10-30 days and will be listed in your purchase agreement. This is the time you have to complete a home inspection, get an appraisal, conduct a title search, purchase homeowners insurance, and secure lending.
Some of these items may be attached to contingencies that state certain conditions must be met within set time frames in order to protect you or the seller. More specifically, contingencies give you a way to cancel the contract and get your earnest money back if something goes wrong, like your lending falls through or the inspection uncovers major problems the seller isn't willing to repair.
It's important to know what's in the sales contract and cooperate with everyone involved to meet all the criteria on time.
Common Contingencies & What to Expect
When it comes to home offers, it’s important to understand the various contingency clauses and how they affect both the buyer and the seller. Lets review the most common contingencies you'll like encounter during the home buying process:
Home Inspection Contingency
An inspection contingency offers the buyer the right to have the home inspected within a given timeframe. It allows the buyer to terminate the contract, negotiate repairs or reduce the offer based on the outcome of the inspection.
Appraisal Contingency
An appraisal contingency stipulates that the buyer is allowed to cancel the contract if the home is appraised at a value below what was agreed upon at the purchase agreement. In this instance, the buyer would be able to keep their earnest money deposit if the home is appraised too low.
Financing Contingency
The financing contingency, also known as a mortgage contingency, protects the buyer from losing their deposit if they are unable to obtain a loan. The purpose of this contingency is to ensure that the buyer is able to secure proper financing to purchase the home.
This is priority number one after the purchase agreement is signed. Earnest money, also called a good faith deposit, shows the seller that you're serious about buying their house.
Your real estate agent will guide you about how much earnest money you should put down. This figure will be in your offer, along with how and when you must deliver the earnest money to be deposited into an escrow account. If you don't deliver it on time, the seller can cancel the contract.
A home inspection is the first item to schedule, as any major issues found could be a deal-breaker if the seller isn't willing to make repairs. Multiple inspectors may be needed, especially if the home is on a well or septic tank or if the original inspector suspects structural issues and recommends an engineer. Your real estate agent should be able to connect you with these professionals and schedule the inspections.
There is no such thing as a clean inspection report, even on new construction. There will always be defects in a property or at least minor issues that could become problematic in the future.
They'll start the process to secure your mortgage. Your agent will review the report with you and help you decide what repairs to ask the seller to make. If the seller refuses, or if there are major issues that make you not want to purchase the home, you can cancel the contract under your inspection contingency.
Once your lender receives the executed sales contract, they'll start the process to secure your mortgage loan. You will need to submit a lot of paperwork, including income tax returns and W-2s, pay stubs, bank statements, investment and retirement account statements, credit verification and explanation letters about negative items, landlord information and rental payments, and more.
It's critical to stay on top of these requests and deliver them on time. Some lenders will not be as communicative when it comes to updating you on the loan process, which is why you (with the help of your realtor) should make it a point to check in periodically and confirm that they are on track. Failing to meet these deadlines can result in a contract breach, which would permit the seller to terminate the contract and keep your earnest money deposit.
A title search reviews the title history to ensure there are no legal issues that would affect the seller from transferring the title to you. It is usually handled by a title insurance company or the closing attorney.
Once complete, you will be required to purchase title insurance for yourself and your lender, which protects you in the event an unknown title defect is found in the future. You should review the completed title search and work with the title company or attorney if they suggest asking the seller to correct anything (i.e. unpaid taxes) before closing.
While unpaid taxes or administrative errors are easy enough to fix, if major issues like unknown heirs, undocumented easements, or forgeries are discovered, it may lead to a lengthy court process to resolve. This is where a title contingency protects you and allows you to cancel the contract if a clear title can't be produced.
Once the inspection and title search is complete and any negotiations are made regarding repairs, the lender will schedule an appraisal with a third-party appraiser. They walk through the home, much like an inspector; in addition to looking at condition, they also look at finishes, upgrades, and other items that affect the value of the home.
They also look at comparable homes in the area and take into consideration neighborhood factors like the quality of schools, traffic, and other conveniences. Their job is to assign an appraised value to the home to ensure the property is worth the loan amount you are requesting.
If the appraisal comes in under the agreed-upon price, a few things can happen. You can negotiate with the seller to reduce the sales price. The seller can request another appraiser for a second opinion.
Or, you can make a larger down payment to make up the difference (be careful though as you don't want to find yourself underwater in the future if home values decline). If none of these options work, your appraisal contingency allows you to cancel the contract and get your earnest money back.
Your lender will require you to purchase homeowners insurance before closing. Shop around, call your current auto insurance company, or ask your agent for a referral. Just like with any other type of insurance, it's important to carefully read the policy and know what's covered and what's excluded, what your deductible is, and if you need to purchase any additional insurance, like flood, that isn't included.
Be sure you're comparing apples to apples when shopping around, and don't settle for the least expensive policy. As you'll soon find out, homeownership isn't cheap, and if something catastrophic happens, you want a dependable insurance company in your corner to help you pay for repairs.
Your agent may also suggest purchasing a home warranty during this time that will repair or replace major systems that fail in the home within a specific time frame (usually 1 year after closing, but there are many warranty plans available).
The seller is required to call and cancel utility services as of the closing date, although it is common practice to leave the utilities on an extra day in case there are any glitches. This ensures everything is still on for the final walkthrough and closing.
As the home buyer, you should call the utility companies at least two weeks before closing so they have time to process your application and receive any security deposits in time for your moving date.
You'll have a closing date in your contract, but you still need to schedule a time at the title company or attorney's office that day. Sellers, buyers, and their agents are all present at closing, and the buyers agent is responsible for coordinating the schedule and time with everyone.
Closing usually takes around two hours, but you'll want to make sure you have enough time on the schedule in case something unexpected comes up.
A final walkthrough 1-2 days before closing is recommended to ensure the seller made all agreed-upon repairs and the home is in the same condition as when you made an offer. This is not the time to make additional repair requests unless something major has happened, such as a hole in the wall that wasn't there before.
Be prepared to sign lots of paperwork. But then congratulations! You bought a house!
With a stellar buyers agent in your corner, buying your dream home can be a smooth - dare we even say, enjoyable! - process. But occasional bumps in the road are not uncommon. Knowing exactly what to expect after your offer is accepted can prepare you to dot those I's, cross those T's, and handle anything that comes your way.
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