Appraisal & Property Insurance

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Assuming that problems found on the inspection weren't a show-stopper, here's what happens next:

The lender orders an appraisal

Once you're for-sure that you want the house, call your lender and tell them, and ask them to order the appraisal.

Your lender wants to make sure the house is worth at least as much as you're paying for it.  They don't want to loan you $180,000 to buy a house that's worth only $135,000, because if you don't make your payments and they have to foreclose on it, they'll want to make sure they can sell it for enough to get their money back.  So the lender hires an appraiser to analyze the house's worth and give a professional opinion about its value.  Although the lender orders the appraisal, you're the one who has to pay for it.  (Did you really think the bank was going to eat a cost they could pass along to you?)  It will run around $450.  You can often have the appraiser's fee added to the closing costs that you'll pay at closing, but some lenders might require that you pay it up front.

When you call to order the appraisal, ask when it should be completed by.  Then call your lender the day the appraisal's supposed to be done to make sure that it has been.  Some lenders are lazy so you may have to take the initiative if you want to move the process along. With an inattentive lender, everything can come to a halt. (I've seen it happen.) If the contract expires because your lender dropped the ball, you might lose your ability to buy the house, and possibly even forfeit your earnest money.

Let's say the appraisal has been completed. If the appraisal says the house is worth less than the loan amount, then your lender won't loan you the money for that house. You'll either have to get the owner to lower the price, pay the difference in cash, or start the whole process over again with a new house. It's rare that you'd be in this position, because you should have had a good idea of what the house was really worth as per the earlier steps, long before you signed a contract.

More likely, the appraisal says the house is worth enough, and so you're ready to buy!

Confirm the loan terms

One of the earlier steps was to evaluate the bank's loan offer, so at this point you should already know what kind of loan you want and can get.  So call or visit your lender and confirm the terms for your loan.  You don't want any surprises at closing.  Get your lender to give you a writeup of the basic loan terms.  The main points are:

    • 15-year vs. 30-year (if you take 30-year, make sure the lender allows you to pay it off in 15 without penalty)
    • No prepayment penalty (or at least a prepayment penalty that seems reasonable to you)
    • FRM vs. ARM (take FRM if the interest rate is less than 10%)
    • Closing costs rolled into the mortgage, if possible, and if that's what you want to do

Get property insurance

Select an insurance agent to handle your homeowner's insurance, and give the agent's contact information to the title company. Your lender will take care of paying your annual insurance bill for you, by adding a small amount to your monthly mortgage payment. You'll make an initial payment for insurance at closing as part of your closing costs, not now. (If you prefer, you can pay your insurance bill yourself, annually -- just let your lender know that's what you prefer.)


Now there's only one more step left to buying your house, the closing.

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Amount spent so far.   Red items apply towards the purchase. Amounts are typical, not exact.

$40

Credit Check

To the Lender

$150

Option Fee

Paid to the Seller. Might apply towards purchase, depending on contract. Allows you to walk away for any reason.

$1000

Earnest Money

Held in Escrow, probably by the Title company

$400

Inspection

To private inspection company to find physical problems with house

$100

Termite inspection

To private company; required by your lender

($700)

Termite treament

(If necessary)

$450

Appraisal

Ordered by the bank so the can make sure the house is worth loaning money on

$2140 - $2840

Total

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