Delaware Homebuying and Closing Process

delaware homebuying

Overview

Step by Step

Part 1: Disclosures, inspections, and credits

These are the initial tasks once a buyer is in contract, and are most often done in parallel to Part 2: The mortgage process:

  1. An offer is accepted by the seller and a contract is signed.
  2. Concurrently, a deposit, also known as earnest money, is paid to an attorney or broker (never to the seller directly).
  3. The buyer reviews and signs off on any disclosures. These disclosures vary based on property type but often include things like known flaws with the property, prior improvements or repairs, and potential environmental hazards.

A standardized disclosure form called a Seller’s Disclosure of Real Property Condition Report is generally provided by the seller as an addendum to the contract and must be signed by both buyer and seller.

The types of inspections vary by property type and situation (and locale), but in Delaware, a home inspector generally inspects the home first, and other inspections and tests can be ordered if revealed to be necessary by the initial inspection.

Sellers have three options: 1) agree to all of the buyers’ requests, 2) offer a modified solution back to the buyer, or 3) decline to make any amends. In response, the buyer can continue to negotiate, accept the seller’s position, or walk away.

Part 2: The mortgage process

For those borrowing to purchase their home, the mortgage process is usually the most stressful and opaque part of the transaction. It’s best to start as early as possible and be ready to produce lots of documentation.

The following is the general process in Delaware:

  1. A buyer submits a loan application to their lender, either directly or through a mortgage broker. See a sample Uniform Residential Loan Application used in Delaware.
  2. Within 3 days, the lender sends a “Good Faith Estimate,” or GFE, to the buyer that is a breakdown of estimated closing costs. The final costs are likely to deviate from this estimate. See a sample GFE at hud.gov.
  3. Before the buyer is ready to write an offer, a pre-approval with a lender should be acquired. The buyer sends a series of personal financial disclosures to their lender. These vary by situation, but the most commonly requested documents are:
  4. Several months of statements for each bank account a borrower holds (including any investment accounts)
  5. Several months of statements for any outstanding loans, lines of credit, or other liabilities. This can also include documentation of rent payments.
  6. Up to two years of tax returns, released to the lender via an authorization submitted by the buyer using IRS form 4506-T.
  7. Recent pay stubs and contact information for each borrower’s employer. The number of pay stubs varies by situation.
  8. Any other disclosures that are material to a borrower’s financial situation. This includes but is not limited to marriage licenses, divorce settlements, child support, liens, bankruptcies, or judgments.

Thus, you may be asked more than once for the same type of document so that your lender has the most recent pay stubs, rent receipts, bank statements, or other disclosures that may change over time.

If the buyer/borrower is unable to get this approval before the expiration of the financing deadline, the financing contingency functionality extends unless the buyer provides written notice to the seller that they were unable to obtain a loan (by no fault of their own), and the deal is canceled without penalty.

Choosing a specific appraiser is not possible, but a mortgage broker can reject an appraiser and ask for a new one. Buyers can insist on an appraisal contingency in the contract such that If the appraisal comes in lower than the purchase price, the buyer has until the expiration of the appraisal contingency period (referred to as the appraisal contingency date) to request a reduction in price (or other negotiated arrangement) from the seller.

Tip: As this process can be long, arduous, seemingly arbitrary, and is often critical to your homebuying transaction, try to prepare these documents (or at least figure out how to prepare them) in advance.

Also, do not make any changes to your employment or credit until your transaction is complete (not just until you get a loan commitment letter).

Part 3: The closing (‘settlement’) itself

The closing or ‘settlement’ process itself general takes place at one table (either at the office of an attorney or lender), where buyers sign all documents related to their loan and the transaction itself.

After all documents are signed and payments exchanged, the deed is recorded with the county. Buyers generally take possession of the keys at settlement unless a separate agreement has been reached to allow the seller to stay in the property for a period after closing.

The detailed steps that makeup closing are:

    As part of the preparation for closing, the attorney performs a title search (if they haven’t already) to determine if there are any liens or assessments on the title.

Provided the title is deemed ‘clear,’ the closing proceeds as planned and the attorney works with a title company to issue a title commitment.

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