We are continuing our series on what to expect from start to finish in the homebuying process. You’ve got our team, found your dream home, got your offer accepted, and now, you’re officially under contract. The contract period is the period of time from when your offer is accepted all the way to being handed the keys for your new home. This is often the timeframe that homebuyers dread the most. But never fear, we are here to help guide you through the contract period to make it as smooth as possible.
On average, the contract period is around 30 days if you are using a loan to finance your home. However, the time it takes to get to closing on your home will also depend on your responsiveness and how quickly you are able to get through all the paperwork and get everything signed. For cash buyers, this time frame can average about two weeks since underwriting for a loan is not required.
Once you are under contract, two fees are due right away - earnest money and the option fee. The earnest money amount is usually about 1% of the purchase price. It’s essentially a portion of the down payment that you pay up front before closing. The earnest money is held in an escrow account until you close and then is applied towards your down payment.
If you choose to walk away from the home for any reason covered in the contract, the earnest money will be returned to you. However, if you get cold feet after going under contract, back out and are in breach of the contract, then the seller will get to keep the earnest money.
The option fee is paid to cover the option period of your contract - a negotiated time frame after executing the contract in which you as the homebuyer can back out of the contract for any reason and still get your earnest money back. The option fee is paid directly to the seller and can range anywhere from $200 to $1,000 and is put towards your down payment at closing.
We see the option fee as a fairly inexpensive way to gain more time to get to know your property. You can only know so much about a home before getting under contract. During the option period we try to get as much information about the property as we can so that you feel as comfortable as possible to complete the terms of the contract.
The option period is typically about 10 days or longer depending on what is negotiated in the contract. One of the most important things we will do during an option period is the general inspection. This is often one of the most intimidating parts of the transaction for homeowners. The inspection lasts anywhere from two to four hours depending on the size of the property.
The inspector will look at the home from top to bottom. They will get on top of the house, under the house (if they can), heat things up, cool things down, and essentially test the home and everything in it. Once they are done, they will create a report of all of their findings. We always recommend that our homebuyers try to meet the inspector at the end of inspection so that the inspector can walk them through their findings in person. However, if you aren’t able to be there, inspectors will often schedule a phone call to debrief on their findings.
Fair warning. These inspection reports are long. Many are at least 20 pages long. However, there are specific red flags, big ticket items, or safety hazards we are looking for in the inspection reports. Rarely do we come across deal breakers in the inspections. The majority of the findings will be “honey-do” items or things that are no longer up to code but have been grandfathered in because of the age of the home. The general inspector may also recommend other specialists (plumbers, electricians, etc.) to come and perform additional inspections on the home if something is concerning. These are also inspections we try to have done during the option period.
Pro Tip: An inspection is a great time to get into the home and take measurements for ay furniture, appliances, or anything else you may need for the home.
If there are any bigger ticket items found, you will discuss with your agent who will be financially responsible for these repairs. Are you paying for these repairs? Is the seller going to have these repairs done before closing or provide concessions to cover the costs? These things will need to be negotiated and settled prior to the option period ending.
The last thing you as the homebuyer will need to do during the option period is to get a home insurance quote for the new property. You don’t have to officially sign the policy, but you do need to have a good idea of what your monthly mortgage payment will be so that you have a better understanding of what you will be financially responsible for each month.
Once you are out of the option period, the rest of the contract period is mostly for the lender to underwrite the loan. They need time to prove all of the information you provided up front so that you get approved for the loan and can close on the home. A key part of this will be the appraisal of the home. At some point, the appraiser will come out and assess the value of the home. They will take into consideration the most recent comps and the quality of the property before giving their opinion on the value of the property.
If the home appraises for lower than what you are paying for the property and that is an issue, we can try to renegotiate with the seller on a lower price or see if the lender can restructure your mortgage to better fit your financial situation.
Remember, do not change your financial picture while you are under contract! Some examples of things that may cause changes in your financial picture are buying a car, opening a new credit card, quitting your job, or buying a bunch of new furniture on your credit card. All of these could cause a delay in the underwriting process or even cause you to lose out on the home.
We know that the contract period can be an intimidating and stressful time for homebuyers. This is one of the many reasons why it is so important to assemble a great team with a great agent. A great agent is going to make this contract period as easy and smoothly as possible for the homebuyers. The more prepared they are and the more prepared you are, the more stress free this process will be.
If you’re ready to dive in and start the homebuying process, give us a call! We’d love to help guide you every step of the way.
Until next time,
Brianna and Keelie