What To Expect At Closing On Your First Home Purchase
Preparing You For Everything For The BIG DAY!2022 is a tough time for first-time homebuyers. In the spirit of what I try to do here on the show, bring you practical positivity, I am going to assume that no matter what phase you are in this process, you have no clue what’s going on at the very beginning of Phase 1 or 2, you are a little bit on the way or Phase 3, you are getting ready to go out there and start writing offers. No matter where you are in your home buying process, you are going to need this show because someday, you will be closing on a home. We are going to fast forward to a day or two before you get the keys to your new home to help you get prepared for what to expect, for our favorite word in real estate, closing.
—What is happening, my How to Buy homies? I am crushing the confusion and bringing clarity to the entire crazy home buying process. We want you to be prepared and have a clear understanding of what is going on, especially for those of you out there that this is your first time buying a home. We are going to jump on the Ted Lasso train of positivity. I am going to get you ready for the moment that you have been dreaming of getting your keys to your very own home, all the excitement that you get in being able to do whatever you want in the house. Instead of just watching HGTV and dreaming about, “Someday, I can do that,” you can actually do it to your home. Getting your keys means that you can finally say, “Screw you,” to your creepy landlord who never returns your calls and does not show up anyway. Getting your keys means no more worrying about rising rents.
Closing Dates Are FluidIn this episode, we are fast-forwarding and saying you made it to this happy place of homeownership. I want to help you get to that place so let’s take a quick meditation moment. We are going to close our eyes and imagine that you survived the hell battles of the 2022 bidding wars for first-time home buyers. Let’s discuss what you need to be expecting in those happy final days before you get your keys to your new home. It is exciting. You are about to take on the largest debt of your entire life that you have ever been saddled with. Isn’t that fun? I was supposed to be taking you to a positive, happy place. I missed it. I am glad that I gave you yin and yang, those positive juju vibes I was having with the meditation moment mixed in with a little bit of the reality because that yin and yang, the excitement of the day you are your keys, can also be mixed in with some of the crazy things that happened in the closing. I am excited for you to get your keys. You then are going to take a picture and send it to me so I can put it back here on my wall of success but let me get you ready for everything. The yin and yang are that closing days also end up being some of the most intense and stressful days in the entire process. Usually, that is because the closing does not happen on time. In episode 81, I talked a little bit about this but let me recap it. Closing dates are fluid. Do not put that date on your calendar with a star, rainbows, and unicorns all around it. It is nothing resembling a rock-solid date. It is a goal, not a promise. There are going to be things that happen. Issues are going to happen. Loans are going to need an extra day or two, or an extra week. The seller’s moving truck might be delayed, stuck in Boise in a tornado or the termite tent needs to stay on for a couple of extra days. Those are a few samples of the many things that can happen. You’ve got it. Closing dates are fluid. Don't put that date on your calendar with a star and rainbows and unicorns all around it. Click To Tweet Get your closing date. Plan on moving it on that closing date. If it does not, cool. You can do what my clients did. When they found out that their home did close on the date that it was supposed to, they met me at home, got the keys, and let their four-year-old Jack run around in the backyard and through a big empty house. They ordered pizza and had a picnic on the floor in their new house. They did not have their movers lined up, painters or moving boxes. They just had a couple of days to enjoy the house and move things over slowly. If you are so tight on the purchase that you can’t factor in a week of overlap between your rental place and moving brand new place, if you can’t cover that safety valve, then maybe you are too tight on that purchase anyway.
Changes In Your DebtOne thing to keep in mind about the closing is that most people buying a home stretch their loan to the very top of their approval, which means there is not a lot of wiggle room for any new changes in your debt. That is going to throw off your DTI. DTI is your Debt To Income ratio. Suddenly, if you have some new debt and new payments that you are supposed to be making, you might no longer be approved for the home loan while you are under contract trying to purchase a house. That can suck in 50 different ways. Do not apply for our credit card when you are trying to buy a house. Do not get a furniture card or a loan of any kind while you are under contract. It is very important. Do not purchase or agree to purchase anything, not with your existing cash because that might be something that your lender has that they are using to show that you can get your approval. Do not use your credit cards and jack up the amount that you have on your credit card. Do not buy furniture. That is the big one. Many people go out and buy furniture. Do not buy appliances. I do not care. Do not buy a fridge or a washer and dryer. Wait until you close before you do that. Do not do anything beyond grocery and gas unless you are talking to your lender first. These days, that is probably going to cost you $1 million. Do not do anything until you close. Closing does not mean the day you sign your loan documents. The documents have to be processed and then funded. No purchases until someone hands you the keys. The Rule of Thumb is this. The second you sign a contract to buy a home before you spend or receive any money of any kind, that is not a regular monthly expenditure or deposit. Call your lender. I do not even want you adding a new streaming service for a new monthly bill, nothing without calling your lender.
Why Do We Say That?: Rule of ThumbThat is going to lead us to another edition of why do we say that Rule of Thumb? It is an approximate method for doing something. It is based on a practical experience rather than theory. The usage of the phrase can be traced back to the seventeenth century. There are two different versions of it. This is the one that is probably more reasonable. It was associated with various trades where quantities were measured by the width or length of your thumb. I never understood how they did that in the old days. I have the world’s fattest thumbs. If you use the width of mine versus the width of my wife’s beautiful long, skinny thumb, mine is twice as fat. Enough about my fat thumbs because there is another definition for the Rule of Thumb comes from. Supposedly, when a judge from England said that it was the amount of the width of the stick that you could beat your wife with that is as outdated as the real estate industry’s treatment of first-time home buyers. I took a horrific subject, “Terrible wife-beating domestic violence.” I made it about you being abused with some crazy thumbstick but the good news is that I am here. I am your stick stopper, thumb forter, Rule of Thumb regulator of truth and quality guidance.
Wire FraudHere is a big one to protect you in this new world of the electronic economy. Everything is done electronically now. I am not just talking about Bitcoin, Web 3.0, and the Metaverse. I am talking about wiring money. Something that has been happening for a long time. The bad guys have caught up on this. The biggest scam in real estate is wire fraud. When you get to the closing, you are going to need to give money to buy the house. Most closing companies are not taking a bag of cash. You are going to need to wire them the money. When you get into the closing, you will notice at the bottom of everyone’s email who is involved with the closing has this big disclaimer about wire fraud. This wire is probably going to be one of the biggest sums of money you have ever sent to anybody in your entire life. It is going to be crucial that when someone is asking for a wire, you do that in a timely manner. That means it is going to be coming at you quick, and the scammers know that. They know how excited you are about this and what is going to feel quick. You are going to be rushing. You might just press send. When a wire goes, it is gone. You can’t stop it. It is done. You wire the money and it is theirs. What these scammers are doing is they are getting company letterheads, logos, and email templates. I am talking from everybody, from banks, escrow companies, closing companies, and attorneys. They are even going to put a phone number at the bottom, you call it, and then they are going to answer the phone, act like they are an office, and make it sound official. Avoid the scams by calling or emailing the people that you work with throughout the contracted period. If you are going to be working with escrow title or attorneys, if it is the same person and they verify over the phone with you where you are supposed to wire it, then you are going to be safe.
Closing Costs Varies Where You AreNext up, let’s talk money or closing costs. I talked about this in episode 81. I go into the details there but I could not get to the closing day without make bringing this up. It is the most confusing part of real estate. I told you why they could exactly calculate it because there are 50 states and everyone does it a little bit differently. The calendar day that you end on depends on what your payments are going to be, not to mention, the fact that each state does things differently. There are 700 different ways that a state will close for the conveyance of a property. Conveyance is the first term that I am going to help you understand in the closing. That is a fancy word for, “I gave you all the money in the world. Give me the keys. I promised to pay for 30 years.” No purchases until someone hands you the keys. Click To Tweet A conveyance is a transfer and assignment of any property right or interest from one individual or entity to a conveyor to another, the conveyee. It is usually accomplished through something written. A lot of time, they are going to call that a deed. That is going to transfer the title. If there is any loan on the property, it will also then create a lien on the property. To help us understand why, how all this works and all these fancy new terms, get again, the number one piece of advice I can give you is that you need to have a super rad and the Bichon, the unicorn team to help you with the closing because it is different everywhere else. There is no generic podcast I can do to explain, “At a closing, you are exposed to expect X, Y, and Z.” It is going to be different everywhere. You need a team of local pros that do it because it is not just different in every state. Sometimes, it is different in every county or town. Before I got ready to do this show, I read through these practices in all 50 states. It is mind-boggling how different it is. My State of California can’t even agree on a single way to conduct it. There are multiple different ways, including a vast Civil War line between the North and South. I found out it is different from county to county. Let me give you some samples of what to expect at the closing and all the terms and the definitions that you should be prepping for. First, I will start in Alabama. You will notice some of these terms are going to cross over from state to state but they are different in some places. Here is how they do it in Alabama. There are attorneys involved. In California, we do not have attorneys but the only thing you do in California without a lawyer is buy a house. You have attorneys and title companies that handle the closings. They do not use any escrow companies. Some of you, all you are going to talk about is escrow when you are buying a house. Some of you will never hear that word, and then there are title companies. Most of you will have something involved with a title company. The ownership chain, the people who own the home and then transfer it to the next one, are making sure that everything is what we call a clean title. That means that it is officially owned by the people who officially purchase it. There is not some random claiming that the home is theirs after you just paid for it. In Alabama, the conveyance is also known as the General Warranty Deed. That is a legal real estate document between the seller called the grantor and the buyer called the grantee. That deed protects the buyer by pledging that the seller holds a clear title. That means the seller is Robert Smith selling the house but they are not, so another Robert Smith is selling the house. They are telling you, “I guarantee, I in this person.” There are no encumbrances, outstanding leads or mortgages against the home. In Alabama, the buyers and sellers negotiate who is going to pay the closing costs. They usually split them equally. That is not the same everywhere. Finally, in Alabama, the property taxes are due and payable annually on October 1st. That is going to affect how much you need to bring in for your closing cost, depending on how many taxes are due on the date that you close. That is just one state. Do you want me to do all 50? I am not but I will give you some other examples. Alaska uses title companies, lenders, and private escrow companies. No lawyers. It is a whole different ball game there. The buyer and sellers usually split the closing costs, and the property at tax payment dates vary through the state. The other cool thing about Alaska is there are no document or transfer taxes. That is a plus for freezing your butt off living up in Alaska. The next example is Arizona. How do they do it in Arizona? The title companies and title agents both handle the closing. In Arizona, the seller usually pays for the owner’s policy and the buyer pays for the lender’s policy. They split the escrow costs otherwise, and they have got two different tax dates in October and March. Here is one thing interesting about Arizona. It does not matter how you purchase the home. You can’t take the title so that one person can own more of the house than the other, which is something you can do in several other states. Arizona is a community property state. That means that all property acquired by either spouse during a marriage is considered to be equally joint owned. Upon a divorce should happen, it is going to be divided approximately equally. How about Arkansas? The agent handles the escrows and the attorneys handle the closings. Property taxes come due three times a year on the 3rd Monday in April and July, and the 10th day of October. Who decided that? I can’t make this crap up. It is different everywhere. You need to have an experienced team. If you haven’t already, hit me up for a unicorn because I am getting sick trying to go through this. Are you ready for your head to spin? Let’s do my state, California. I love it here. Do not get me wrong. I go through all this crap because I love where I live. In California, not only do the escrow procedures differ between Northern California and Southern California but they also vary somewhat from county to county. Title companies handle the closings through an escrow in Northern California, whereas in Southern California, the escrow companies and the lenders handle things. You need a team of local pros that do it because it's not just different in every state. Sometimes, it's different in every county, in every town. Click To Tweet The conveyance is by a grant deed, which is different than some of the other deeds in some of the other states that we have talked about. That is a deed of trust with private power of sale. That is the security instrument used throughout the state. That means that the deed of trust is similar to a mortgage except for the power of sale. It absolutely conveys the property title to the trustee to the benefit of the lender. That means a lender does not own the home. It is like when you do not get your car, your pink slip because you still have a loan. What the lenders can do is sell the home right from under you if they notify you and then they can foreclose on you. To make things even more confusing in Southern California, the sellers pay the title insurance premium and the transfer tax, and the buyer and seller split the escrow costs. In Northern California, it is different in the counties of Amador, Merced, Plumas, and San Juan. The buyers and sellers share the title and the escrow costs equally. If you are in Butte County, the sellers pay 75% and the buyers pay 25%. Why? I do not know that because they are Butte. It is different in Mendocino, San Francisco, and San Mateo. That is where the buyers pay for the title insurance policy and the sellers pay in the other Northern California. It is ridiculous. If you are asking me questions about, “What should I expect at closing?” I am only licensed in California. Over on the East Coast, most of the time, I find out everything is done by an attorney. Your realtor is going to be able to help you out to get you a good real estate attorney. In Connecticut, attorneys conduct the closings. In Delaware, attorneys handle it. In the District of Columbia, which is not a state, although people are fighting for it, the attorneys and title insurance companies are involved in the closing and the agents might conduct some of the closings. I do not do that here in California. I do not conduct the closing. Some of the agents that I work with, “Good luck in the District of Columbia. I am scared to death as the agents have to conduct the closing.” They also have something else in the District of Columbia called a bargain and sale deed. I looked it up but it is not worth going into. If you are in DC, get a good realtor. Another good one I found is in Maryland, the attorneys conduct the closing and there has to be a local attorney involved. You can’t just do it online over a Zoom. Here is something else interesting at the closing. There are all these special fees and things that might happen for you because if you are a police officer in Prince George’s County, who is a first-time homebuyer, they get a break on their transfer taxes. In closing, under a law that took effect in 2006, those beliefs officers only pay 1% of the purchase price rather than the 14%, which is the regular rate. In Maryland County, school teachers were made eligible for the same tax break in an earlier law without the first-time buyer limitation, so it could be your 2nd or 3rd purchase. Teachers who buy a home, if they want to use that, have to commit to living in the house for at least three years and maintain the teaching position within the county during that time. These are closings. There are all different things we need to be prepared for and things that you could possibly take advantage of. I am not going to go through the rest of it. I did 10 or 11. There are at least 40 more states but I am not going to do them all. Now you know that most of the terms and the parties involved you are going to be working with an escrow or a lender. You might have some real estate attorneys involved. You are definitely going to be talking to a title company. You can be prepared for that exciting moment that is going to happen for you. The best advice I can give to everyone is to get yourself an advocate, a super unicorn realtor. They have done this before. They know the drill. That is some quality closing information, a bunch of random terms you never thought you would ever care about. If you want more detailed and specific information on anything for the first time homebuyer, you can spend your days googling it and do what I did, try to sit down, and write down these topics in some semblance of anything that makes sense or scroll through all my titles because I have done all the work for you. You can also go to HowToBuyAHome.com. You can search by keyword. Type in what you are searching for and it will pop up the show with the information that you are looking for. Be sure you check out the YouTube page, How To Buy A Home podcast, for more specific home tips. Make sure you hit me up on TikTok. If you are going to be scrolling through anyway, you might as well get a little nugget on how to buy a house. I found out that Camilla Cabello is going to be going live on TikTok, doing a whole concert for 45 minutes. If I get 10,000 followers, I promise I will not do a concert like hers. This is awesome because, in 2022, there is everybody here laughing that I pronounced her name wrong. In the future, everyone is going, “Who the hell is he talking about?” I do not know. That is mean. Maybe she will have a great long career. God bless her. Check me out on TikTok. It is also a great place you could drop a question and get some simple answers. Rate and review the show, subscribe and share. Someday your friends or family will need to know all this crap about closing and who better to help them out that some nerd who has been doing this for many years. There is nothing more exciting than when you get to the closing. The last thing you want to do is listen to your realtor, an attorney or someone else be like, “I do not understand what they are talking about.” You want to be stoked. Just happy. Spread the word. Share these definitions with all your friends. Let’s start the revolution, crush the confusion about buying a house and get you to the finish line. Positive, I am a believer. This is possible, and you can do this.
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!