You’re Under Contract to Buy a House. Now What?

Buying a home is one of the largest financial decisions you’ll make, if not the largest. As a result, it can be a complicated, time-consuming, and stressful process.

Though it might not feel like it during your search, eventually the right home will appear, your offer will be accepted, and you’ll find yourself in contract to buy a house. (Having just become a first-time homeowner after a year-long search, this is a promise I feel comfortable making.) While it is a relief to finally be under contract, you’re not quite out of the woods. Here is what you can plan to do between going into contract and closing on your new home.

CELEBRATE WHILE MANAGING EXPECTATIONS

No, the house isn’t yours (yet). But that doesn’t mean you can’t celebrate. Going into contract is a major milestone in the house-buying process. Take a moment to soak it in. You’re one step closer to being a homeowner!

At the same time, you don’t want to get your hopes up. There are still some hurdles to get past, as you’ll see, and you could end up back on the house hunt. While it’s a discouraging prospect, it helps to go in with eyes wide open. And if you don’t close the sale, it might be for the best; my wife and I “lost” one house under contract but are now very thankful because it allowed us to buy our current home.

KNOW YOUR CONTINGENCY DATES

Once you’re in contract, there will almost certainly be contingencies, or contract clauses that must be satisfied in order for the purchase to go through. Common ones include financing, home appraisal, and inspection contingencies (more on those in a minute). Whatever your contingencies are, you should know when they need to be satisfied to make sure you don’t lose your future house. You also want to set realistic contingency dates to ensure that they accommodate your lender, inspector, and other third parties working with multiple home buyers. A real estate broker, should you use one, can help you manage these dates and keep you on schedule.

FIND A LAWYER

Contracts to buy a home are long, complicated, and written in legalese. Your real estate broker will walk you through the terms of the contract, but you’ll still want a lawyer to review the document and make sure that there are no sneaky clauses that could put you in a bad position.

Depending on how the contract is written, you may want to get the lawyer involved before the contract is signed. When we purchased our home, we built in a brief, three-day “grace period” for both our lawyer and the seller’s attorney to review the contract and make amendments after we signed. However, there is no automatic grace period, so make sure your lawyer is available to review before you sign on the dotted line.

GET YOUR FINANCES IN ORDER

Unfortunately, neither money nor homes grow on trees. You’ll need to organize your finances so you can make your earnest money deposit, get approved for your mortgage, and ultimately make your down payment. Realistically, you’ll want to start this financial process before you go into contract.

As you prepare your offer, you’ll determine what your “earnest money” will be. Also known as a holding deposit, earnest money shows the seller that you’re interested in the property and making an offer in good faith. Think of it as “skin in the game.” It is typically between 1% and 3% of the purchase price. Whatever number you decide, you’ll need to have that much cash on hand within a couple of days of signing the contract. The money is put into escrow, or held by a third party, until closing. It’s not as scary as it sounds, though; the earnest money is typically returned to you if the contract falls through or goes toward your down payment.

Most home buyers will need a mortgage, which requires approval from a credit union or bank. You’ll need to provide a variety of documents, from account statements to income information, for the lending institution to evaluate your financial situation and approve your mortgage. Better yet, you can get pre-approved. While this doesn’t guarantee a loan, it helps you know what you can afford and what to expect as you go into contract. It can also help with your housing search, as some real estate brokers won’t show you a home without a pre-approval letter that proves you’re a qualified buyer. Once you’re in contract, you’ll work with your lender to finalize your mortgage based on the details of the purchase and the up-to-date snapshot of your finances.

Assuming all goes well, you’ll make it to closing ready to write one of the largest checks of your life. Arrange to have the necessary funds accessible for your down payment, which is usually between 5% and 20% of the purchase price. If you put down less than 20%, it will cost you more long-term, both in interest and private mortgage insurance.

SET UP THE INSPECTION

Other than financing, the home inspection is the most important step to get from contract to closing. The purpose of this inspection is to uncover any potential issues with the house so they can be addressed before it’s yours. This helps you avoid a sudden rash of repair expenses after you’ve just spent hundreds of thousands of dollars on the home itself. These issues could be related to the structure, electrical system, plumbing, heating, or anything else in the home.

Generally, you’ll have two to three weeks to complete your home inspection. While this may seem like plenty of time, home inspectors are in high demand and often booked. Get a list of recommended inspectors from your real estate broker or from online research. That way you’ll be ready to call them as soon as you’re finished celebrating (or even before) to schedule your inspection.

You, the inspector, and your broker will typically spend a couple of hours together for the inspection. They can sometimes take even longer to complete for larger homes or houses in need of love and repairs. Depending on the inspector’s rates and how long it takes, you can expect to pay a few hundred dollars for their services. It’s worth the time and money, though, as it can save you thousands of dollars and a lot of headaches down the road.

NEGOTIATE WITH THE SELLER

You’ll receive a complete report, usually within 48 hours, that details everything that the inspector noticed. You can then begin negotiations with the seller to address any issues that have been identified. You can ask the sellers to fix anything in the report, although it is generally recommended that you stick to larger issues or safety matters such as electrical work, heating systems, or structural damage. On the flip side, the sellers aren’t obligated to meet your requests. If they don’t do so to your satisfaction, you could get out of the contract at this point. Given the amount of time, energy, and money put into the contract, though, usually both parties can find a comfortable middle ground to get to closing.

SWITCH UTILITIES

After satisfying the contingencies and getting the clear to close, you can safely get excited about moving into your new home. While you picture how you’ll furnish, decorate, and otherwise make the home your own, there are a couple of practical matters to take care of.

Both you and the sellers will need to contact the utility companies to get the services transferred. This usually takes place on the day of closing but can vary depending on when you’re moving in.

SCHEDULE INTERNET SETUP

In this digital age of streaming services, smart phones, and working from home, is it even a home if you don’t have internet? Choose your internet provider and schedule an appointment for them to connect you. Instead of renting from your provider, you’ll likely want to purchase your own home Wi-Fi system. What system you choose—modem, router, mesh network, or otherwise—is a topic for another blog post.

DO THE FINAL WALK-THROUGH

The moment is finally here—the day of closing! Before going to the closing, you’ll do a final walk-through of the house and property to make sure all the terms of the contract are satisfied. Here are some things to look for during your final walk-through:

• Did the issues from the inspection get resolved?
• Is everything included in the sale of the home, such as appliances or yard items, on the property?
• Did the seller remove all of their possessions from the property?
• Is everything in working order, including the appliances, plumbing, and heating?
• Is anything damaged?

Should you, unfortunately, find any issues on the final walk-through, you’ll need to contact the seller to have them rectified. A real estate broker can be a helpful guide to get you through this process and across the finish line.

PRACTICE YOUR JOHN HANCOCK

Your loan is approved. The house and property are pristine. You’ve written the check for your down payment and closing costs to present at closing. Now all that’s left to do is to close on your home!

To make it official, you’ll sign page after page (after page) acknowledging all the moving parts to buying a home and transferring the deed to your name. Do you know how a word loses its meaning and the spelling seems odd when you write it too many times in a row? That’s how I felt with my signature. It was like I forgot how to spell my name or write in cursive.

So, on second thought, maybe don’t practice your signature after all. Put some champagne on ice instead!