What Happens After You Go Under Contract for a House?

When a buyer and seller agree on terms for a home sale, the property officially becomes “under contract.” This crucial phase signifies a mutual commitment but does not mean the deal is finalized. Instead, it marks the beginning of a detailed process involving several essential steps that must be completed before the legal transfer of ownership can occur.

Initial Contractual Obligations

Upon entering a purchase agreement, the earnest money deposit is a financial commitment demonstrating the buyer’s serious intent. It is typically a percentage of the sales price. The funds are usually deposited into an escrow account within a few business days of signing, held by a neutral third party until closing. If the buyer adheres to the contract, this money is then applied towards their down payment or closing costs.

Many regions include an attorney review period, typically lasting three to five business days. During this time, both the buyer’s and seller’s attorneys can review the purchase agreement, propose modifications, or even disapprove the contract. This period allows legal counsel to ensure the terms are fair and protect their client’s interests.

A real estate contract often includes various contingencies, which are conditions that must be met for the agreement to remain binding.
A financing contingency protects the buyer if they cannot secure the necessary loan approval.
An inspection contingency provides the buyer a specified period to conduct a thorough property inspection and negotiate repairs or credits, or terminate the contract.
An appraisal contingency ensures the property’s appraised value meets or exceeds the agreed-upon sale price; if it falls short, the buyer can renegotiate, cover the difference, or exit the contract.
These contingencies safeguard both parties and define specific circumstances under which the contract can be voided.

Property Assessments and Valuations

After initial contractual obligations, evaluating the property’s physical condition becomes a priority through the home inspection process. A licensed home inspector examines the property’s structural components, mechanical systems, electrical wiring, and plumbing. The inspector provides a detailed written report outlining any issues found. Buyers often attend the inspection to gain a deeper understanding. Based on the inspection report, buyers may request the seller to complete repairs, offer credits, or adjust the sales price.

An appraisal process is initiated, usually mandated by the buyer’s lender. The appraiser assesses the property’s market value based on its condition, location, and recent sales of comparable properties. This valuation ensures the loan amount does not exceed the property’s actual worth. If the appraisal comes in lower than the agreed-upon purchase price, the buyer and seller must decide whether to renegotiate, have the buyer cover the difference, or terminate the contract if an appraisal contingency is in place.

Depending on the property’s characteristics, additional specialized inspections might be conducted. These could include testing for radon gas, pest inspections to identify infestations, or lead-based paint inspections for older homes.

Securing Financing and Title

The mortgage underwriting process determines the buyer’s financial capacity and the overall risk of the loan. Underwriters examine financial documents like W-2 forms, pay stubs, and bank statements to verify income and assets. They also scrutinize credit history. The buyer’s role involves promptly supplying all requested information and addressing any follow-up questions or conditions posed by the underwriter.

A title examination is performed to ascertain clear ownership of the property. A title search investigates public records to identify the legal owner and uncover any existing claims, liens, or encumbrances. Title insurance is then purchased to protect both the buyer and the lender from financial loss due to unforeseen defects. There are two types: a lender’s policy, required by the mortgage provider, and an owner’s policy, which protects the buyer’s equity.

Obtaining homeowners insurance is another essential step for loan approval. Most mortgage lenders require a homeowners insurance policy to protect their financial investment. This insurance safeguards against unexpected events like fire, theft, or natural disasters. Buyers typically need to secure quotes, select a policy that meets lender requirements, and ensure it is bound before the closing date.

Finalizing the Transaction

As the transaction nears completion, a final walkthrough of the property is conducted, typically a day or two before closing. The primary purpose of this walkthrough is for the buyer to verify that the property is in the agreed-upon condition, that all negotiated repairs have been completed, and that no new damage has occurred since the previous inspections. The buyer should check that all systems are functional, fixtures remain as expected, and the seller has removed all personal possessions. If any issues are discovered, the buyer’s real estate agent will communicate them to the seller, potentially leading to a resolution or credit.

Finally, the closing day arrives, marking the official transfer of legal ownership. This event typically takes place at a title company, attorney’s office, or escrow company, with the buyer, seller, their respective agents, and a closing agent or attorney present. During closing, numerous legal documents are reviewed and signed, including the promissory note and the mortgage or deed of trust. The buyer will also sign the closing disclosure, an itemized list of all final loan terms and costs. Funds, including the down payment and closing costs, are transferred. Once all documents are signed and funds are disbursed, the keys are exchanged, and ownership officially passes to the buyer.