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Business :: Real Estate :: Hawaii Home Help :: Demystifying the Process of Closing Your Home Purchase

Demystifying the Process of Closing Your Home Purchase

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Finding the right home can be a huge project. Many buyers look at homes for months or even years -waiting for just the right property or maybe just the right price. Then suddenly when you least expect it - you find your home!


Guess what - the right house is just the beginning. To someone who has bought and sold multiple homes the process of home buying probably seems simple and straightforward. But to most homebuyers, it is a once or twice in a lifetime event. Realtors sometimes forget that is an involved process that has only become more complex over the years.

It's a bit like starting a family. You think and dream about that darling little child and forget that you have to get through pregnancy and childbirth first. Here are the steps in a typical home buying process. It might be smooth, or it could be painful and messy. The truth is that there are usually a few bumps in the road. Anesthesia is not an option, so you might as well stay alert. The more you understand the better prepared you will be as the proud new homeowner. Start chilling the champagne!

Step 1 - Make That Offer
Your Realtor, hopefully a Buyer's Agent, will prepare the offer forms and explain the fine print. With your agent's guidance, you decide on the offer price and terms. The Seller may give a counter-offer changing the price or terms. When an agreement is reached by both sides, you have passed the first big hurdle.

Keep in mind that offers must be in writing and are usually on the standard purchase form or "DROA". This is an acronym for Deposit Receipt, Offer, and Acceptance. With any attachments, or Addenda, it is typically thirteen to seventeen pages long. Note that new home developers utilizes their own contract format and process which is mostly non-negotiable and favors - guess who! In either case, once signed by both sides, you are now a party to a legally binding purchase contract.

Step 2 - Open Escrow Account
The escrow company specified on your DROA holds your initial deposit ($1,000-$10,000 or more) and the original purchase contract. Escrow is neutral and must follow the written instructions of both the buyer and seller. They keep an accounting of all the charges and costs to both parties, including collecting the purchase funds from buyer and applying any mortgage funds. They charge a fee for this service which is usually split between buyer and seller.

Step 3 - Title Search
A search of the legal ownership of the home is required to transfer the property to you, the new buyer. A title company is responsible for this, and is usually affiliated with the escrow company. The cost is also shared between buyer and seller, and varies based on purchase price.

Step 4 - Contingency Period
Contingencies are the legal loopholes that allow you to cancel the purchase without penalty under certain circumstances and during a strict timeline. As a buyer you have several opportunities to learn more about the property before the purchase is final. If you are not happy with what you learn you may exercise one or more of the following clauses if you want to cancel your purchase, or just to drive the Seller nuts!:

Financing Contingency allows buyer to cancel sale if after best efforts you cannot get the lender's approval for your mortgage.

Home Inspection Contingency - also known as the dreaded "C-51" after its number on the DROA. You will probably want to hire a professional home inspector at your expense to determine details about the home's condition. Whether or not you hire an expert, this is a time period you have to satisfy yourself that the home is acceptable to you. Architects, contractors, and concerned relatives may also affect your decision during this period - it's up to you. Typical inspection allowed might be anywhere from 7 to 21 days.

Sellers Disclosure Statement Review -You receive a written statement from Seller required by Hawaii state law describing any past problems, from roof leaks to plumbing problems, or any conditions which would affect on the value of the property. Once you receive it, you may have from 3 to 20 days to back out.

Condominium Document Review - When applicable you should receive a hefty batch of information on the condo or association that pertains to our home. This may include neighborhood covenants, condominium rules & financial documents. If you find out that the Midnight Tuba Club practices in the unit upstairs from you, you can rethink your purchase - or join in the fun!

Termite Report - Some contracts allow you to review and approve of the Termite Inspection Report, or TIR as a condition of the purchase.

Leasehold Terms - If you are buying leasehold property, State law requires that you receive and approve of a package of information about the lease terms to avoid misunderstandings about this type of property.

Availability of Cash Funds - This may apply of you are refinancing another home or simultaneously selling another property to obtain your down payment.

Note that all contingencies have a time limit. A contingency is considered approved unless you notify escrow in writing that you wish to cancel the purchase. This must be done before midnight on the date that the contingency time period ends. If you are dissatisfied or otherwise not able to proceed you may cancel the purchase and receive a refund of your deposits. If all is OK it's probably time for…

Step 5 - Additional Deposits
Your purchase contract probably specifies that once certain contingencies have been met (such as approval of the home inspection or mortgage loan approval), you will deposit additional funds towards your down payment. This deposit further secures your position as a buyer and also gives the seller peace of mind since once all your contingencies are past, you could lose your deposits if you back out of the purchase.

Step 6 - Land Survey
Most single family home buyers want a survey to determine the legal boundaries of the lot. If walls or other structures cross over the property lines, which is a common occurrence, these encroachments may need to be resolved or approved by the buyer prior to closing.

Step 7 - Termite Inspection Report
A termite inspection report from a licensed company is usually required and may be paid for by the buyer or the seller ($200-$500). If termites are found, treatment will be required by the lender, and nearly always paid for by the seller. Even high-rise condos have wood trim that can become infested with termites.

Step 8 - Final Walkthrough
The buyer has an opportunity to view the property sometime during the last week before the sale is complete. The purpose it to make sure that the place has not deteriorated since it was inspected. "Aloha Oe" parties can leave a mess behind so this is the time to decide if any last-minute repairs are needed to put it back in shape.

Step 9 - Document Signing
You will need to sign more papers than you ever imagined to make this house your home. If you are getting a mortgage, prepare for a couple of hours for all the loan-related papers. This signing usually takes place at the offices of the escrow company about 3 to 7 days prior to the closing. If you are buying long-distance, the papers can be emailed to you, but your signed and notarized originals will need to be received in Hawaii several days prior to the closing date.

Step 10 - Deliver the Funds
At this time you should also be prepared to bring in the balance of your down payment. You may wire in the funds or bring them to the escrow company no later than 3 days before the closing date. Hawaii State Law requires that your funds be in the form of U.S. dollars, by way of a cashier's check from a Hawaii bank or wired from another bank. It is easy if you just bring your cashier's check to the signing appointment. Be sure to ask the financial institution in advance about the availability of funds when you need them, and determine if wiring funds is a possibility. Some banks require you to be there in person to receive the funds even if that means a 7 hour plane trip - inconvenient at best.

Step 11 Closing (Recordation)
When all documents have been properly signed by both buyer and seller, and all funds have been deposited (in advance) the conveyance documents are sent to the State of Hawaii for recording.

Note there are big differences in terminology and timing from state to state. Hawaii has no group closing event where all parties sit together around the table to finalize the deal. All pending issues are resolved, funds delivered, and all documents are signed prior to the closing day. The official date of the purchase, the closing date, is the date the transfer of ownership is recorded in the State of Hawaii Bureau of Conveyances not the date of the signing.

But finally, it is time for

Step 12 - Delivery of keys
Once the transfer of ownership is verified by the escrow company (usually 9:00am-11:00am on the date of closing) you become the legal owner of the property. Your Realtor will arrange for you to receive a set of keys to your new home. Congratulations!

The views and information contained are not provided or endorsed by Oceanic Time Warner Cable or any its affiliates. The content provided is for general information and entertainment purposes only. Please seek professional advice before acting on any information contained within this web site. Any unauthorized reproduction is prohibited.


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