The Final Five Steps

The rest of the list...

Step 6 -- Look for Termites

Lenders also require a certificate showing the home is free of termite infestation or damage. The seller usually pays for the termite inspection.

It's far better to pay about $250 to $300 on a professional home inspection than to gamble. Make sure that the sales contract includes a protective clause that makes the final sale contingent on a home inspection. A qualified inspector will uncover any conditions that might cause you to reconsider the purchase.

Step 8 -- Obtain Private Mortgage Insurance (PMI)

It seems like everything has to be insured, whether you need it or not, but private mortgage insurance is one of those costs that homebuyers just hate to pay. PMI applies to you if you're buying a home with less than 20 percent down. Ironically, it doesn't insure you the homebuyer for anything-it simply protects the lender in case you default. PMI is one of your largest closing costs so be sure to keep the costs down. There are two ways to pay for PMI, either monthly as part of your mortgage payment, or by making a larger one-time premium payment. If you are only planning to keep your home for a few years, or plan to refinance in that time, the monthly plan is probably your best deal. If paying a lump-sum premium, consider asking your lender to add the cost of PMI to your loan amount. Although your monthly payment will go up to reflect the larger loan amount, you won't owe anything at closing. "Financing" your PMI as part of your loan has the added advantage of turning PMI into a tax-deductible expense. The premium itself isn't tax deductible, but the interest you pay on the larger loan amount is.

Step 9 -- Order an Appraisal

Why Is It Necessary?

Prior to finalizing your loan, your lender will order an independent appraisal on the home. The appraiser will inspect the property, compare it to comparable properties in the neighborhood and determine its market value. An appraisal seems superfluous to most homebuyers. After all that negotiating on the sales price and research, why should there be any doubt about what the home is worth? In fact, it's not unusual for the appraised value to exactly match the amount on your sales contract. Appraisals are nonetheless critical to the lender's final decision because the appraisal report is an independent estimate of the home's value, or collateral, on which the entire loan is based. An appraisal ensures that the lender doesn't loan more than the home is worth.

Why Worry?

This is an important step because appraisals sometimes aren't ordered until a week or so before closing. It can be disastrous if the appraised value fails to match the contract price. It can put your loan in jeopardy and with so little time left to renegotiate the price, threaten your sales contract. You'll need to move quickly to overcome problems with the appraisal.

Dealing With a Low Appraisal

You may want to appeal for a re-appraisal of the property. Your Realtor can assist you with providing comparable sales data to counter the appraiser's data. If you make a good argument, the appraiser might be willing to adjust his estimate. Just make sure you have a convincing case. Or your lender might allow you to obtain a second appraisal. Of course, the risk in or ordering a new appraisal is that it might come in too low. The other alternative, if you think the appraiser was right the first time, is to renegotiate with the seller to lower the price.

Step 10 -- Walk Through and Check Everything

Your sales contract should have a contingency allowing a final "Walk-Through" for you to examine your home the day before closing. You need to inspect the house to make sure the owner finished moving out, and left behind everything you agreed conveys as part of the sale. Check anything covered in the contract such as light fixtures, appliances, built-in bookshelves, drapes, or blinds to be sure they haven't been removed. Generally speaking, anything that cannot be removed without damaging the home automatically conveys. Check all lights, plumbing, and appliances to make sure they work properly. If anything is damaged or missing, you have the right to delay the closing until the problems are corrected.

Now You're Ready to Look at Costs

Closing Costs, that is.

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