Should I Stay or Should I Go?

Chapter Fourteen:

The Last Steps: Final Conditions & Signing

“The best way out is always through.”

– Robert Frost

Hurrah! The inspection and re-inspection are complete with repairs done. Hooray! The appraisal is done and matches the approved loan amount. Whew. At this point, you’re probably about two weeks from the scheduled closing date.

Now it’s time to get out the magnifying glass.

Final Conditions

Everything that’s been done, and all the accompanying paperwork now goes into “the black box of underwriting.” The underwriter is going to get out their magnifying glass and review every single detail.

Once again, this is why I’ve stressed that you don’t want to use one of the big banks as your lender. The underwriters who work for the big banks are typically far removed, both literally and figuratively. They could be located across the country and there’s often no way to talk to them. This sort of distance can create issues and slow the process at the worst possible time.

On the other hand, if you use a local lender, the underwriter could be sitting right down the hall in an office in the same building. They’re accessible. If something needs to be addressed, it’s easy to call them. The loan officer can walk on over and talk to them. This is not a negligible advantage.

The underwriter is going to inspect everything you’ve claimed about your finances, and everything they can find out about the property. The underwriter is the person who ultimately approves your loan. Yes, you were pre-approved, but at this point you need the final stamp of approval from the underwriter.

Your loan officer can be the friendliest, most helpful person you’ve ever dealt with, but it’s the underwriting department that approves your loan. Now is the time they’re going to make sure you didn’t go out and buy a car since the time of your pre-approval. They need to ensure you don’t have any additional monthly payments that will affect your ability to pay your mortgage. They’re going to look at your bank statements to be sure everything looks right and there weren’t any unexpected cash deposits that made your financial picture look better than it really is. (Since 9/11, undocumented large cash deposits raise big red flags!)

If you’ve been working with a great Realtor and a great local lender, everything should be fine at this point. Final conditions tend to bite buyers if they failed to listen to the advice of their lender early in the process, or if the lender didn’t care enough to spell out all the details and exactly what steps were needed.

I call final conditions a “black box” because at this point, your Realtor, no matter how great they are, is pretty much out of the equation. There’s nothing they can do. Up to this point, if you’re like most buyers, you’ll be close to your Realtor. You’re tight; you’ve created a relationship; you’ve been through a lot together since you first sat down for your interview and the pre-shopping consultation. You might be used to speaking every day. However,

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once the appraisal is done, there’s little your real estate agent can do until underwriting is complete.

While, as the CEO, you might not lean on the COO (your Realtor) as much now, you really want to stay in touch with your CFO (your lender).

It’s critical that you stay in touch with your lender during this time because you want to be sure that they’re shepherding your loan through the underwriting process. Again, at the risk of sounding like a tape loop, a big bank’s loan officer, or an online lender, won’t be as accessible to you as someone who’s entire business rides on your referral later. Small, local lenders need to get the deal done on time to stay in business. The big banks and internet lenders do not.

At some point, underwriting will say: “Appraisal’s done; the house is good; your finances are solid; your paper work is in order, so we’re going to deliver the docs to escrow.”

This is the goal: documents released for signing! You’ll know this is happening because at least three days before, you’ll receive a seller disclosure form that itemizes all the costs associated with the loan. This is part of a Consumer Protection Bureau regulation to ensure that you have all the information needed, that you know exactly what’s happening, and that there’s no predatory lending occurring.

Signing

Underwriting is done and documents have been delivered to escrow! That brings us to the next part: signing. It’s important to keep in mind that signing is not closing; you’re not yet getting the keys to the house.

You can expect signing to take place at the escrow office. Escrow has been diligently holding the earnest money you paid for what, by now, might seem like a long, long time.

The escrow office (or attorney) has also collected all of the supplied documents from the seller and put them all together in your file. They’ve verified that everything matches state laws and will confirm your transaction is good to go.

Side Note: Certain parts of the country don’t use escrow officers but use attorneys. In either case, the job is the same.

You can expect to sign about 100 pages of documents while you’re there. Your real estate agent might or might not be there as there’s nothing for them to do at signing except smile. The escrow officer or attorney will answer any questions you have about what you’re signing.

Signing usually occurs two to three days before closing although same day closes are possible, too. It’s rare that you’d ever sign at the same time as the seller.

Once both you and the seller have signed the needed documents, they get packaged up and returned to the lender for final approval. Yes, one more approval process, but at this point, you can probably start to chill that champagne.

Between signing and closing, you’ll want to have scheduled a final walk through of the house. It may have been a while since you’ve seen the place and a lot can happen to a property over the course of the closing process. If it’s vacant then there might be vandalism to deal with. If it’s occupied, it’s possible that the house is nowhere near the condition it needs to be in to be turned over. I’ve seen damage caused be the seller when they were moving out that we wouldn’t have seen but for the walk through. If there is damage or the house is somehow unacceptable, you and your agent are going to need to put the brakes on the transaction until whatever it is gets resolved. This is never fun, but if you hired well, your agent should be prepared to get you through this step. Be thankful problems that kill the deal at this stage are rare.

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The shortcuts people fall prey to in these final stages are almost always some form of Confirmation Bias. Questions not asked are usually a function of this shortcut. Buying a new car, for example, wouldn’t happen if the client asked their lender if it was a good idea. (It is not a good idea for those of you keeping score at home). The act of not asking their lender comes from their “already knowing” that it’s okay. It doesn’t occur to them to ask, so they don’t.

I know I’ve warned people to not take on any large purchases, or switch jobs, or accept any large cash gifts, and I’ve had clients do these things anyway. Why? Because in their mind, what I warned them of didn’t register as applicable to them. They already knew better. They’re trusting their own intuition while in the midst of the most expensive financial transaction of their life, and this is generally a recipe for problems.

Closing, Recording, and Keys

It’s been a long process. Was it smooth sailing all the way? Or were there some hairy moments and nail biting? Regardless, you’re now finally about to get your dream house!

When all the documents signed have been reviewed by the lender, they’ll say, “Release the funds.” This is like someone saying, “Release the hounds” but the total opposite as instead of running in fear you’ll be celebrating in joy!

The funds go to escrow, and escrow “releases the title to record.” They literally send the title to the county, so it can be recorded in your name. The property has switched ownership from the seller to you by deed, and it’s now recorded in the county. Depending on your location, it should only take a few hours from the time of release until you’re recorded. You’ll be notified when this occurs.

So now comes everyone’s favorite part: keys! By far, the best part of my job.

If the seller negotiated possession after closing (for example, they need a little extra time to move out), you are still entitled to get keys as you are now the official owner of this house. The loan has been funded, it’s been released to record, recorded, and it is now your house.

Congratulations! Pop that cork.

Avoid Being Shortchanged: Shortcuts to Watch For

• Confirmation Bias: As you are nearing the end of the process, you might begin to believe you already know what’s best at this point. Beware! Despite my warnings and advice, I’ve seen clients succumb to this heuristic and create huge problems.

Stay vigilant and ask before making any major life changes.

Points to Remember

• The paperwork goes into the “black box” of underwriting to let the underwriter review everything with a fine-toothed comb. The underwriter is the person who ultimately approves your loan. • It’s in your best interest to use a local lender because the underwriter is likely to be working locally rather than across the country. Having them accessible to your lender could be the difference between closing on time and not closing at all. • The underwriter will verify that everything you said about your financial situation, and everything said about the property, are all accurate. • Your real estate agent can’t do much during the underwriting process, and it’s a good idea for you to stay in touch with your lender during this time.

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