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Imagine the excitement when everything you’ve worked for starts to fall into place.
Having your offer accepted is a huge win. It’s a sign that you’re one step closer to owning a rental property. All the research, strategizing, and number-crunching finally paid off. You’re almost there! But, before the keys are in your hand, there are a few milestones ahead. In this article, you’ll learn what to expect along the way to be fully prepared for what comes before closing when you get financing.
A home inspection is usually one of the first steps after your offer is accepted. It’s a detailed evaluation of the property's condition, conducted by a licensed home inspector that you’ve hired to identify any existing or potential issues.
After the inspection, you’ll receive a report highlighting concerns or callouts that the inspector had. They can range from minor repairs (like a loose railing) to more substantial findings such as structural issues. This all depends on the condition of the property.
While optional, an inspection can be a useful tool to help you make an informed decision about whether to move forward, renegotiate the price or terms, or walk away from the deal. Be sure to discuss the findings with your real estate agent and home inspector to make an informed decision on your next steps.
As part of the loan approval process, an appraiser will be sent to the property to determine its value. You may be wondering why there needs to be an appraisal rather than tying the property value to its purchase price.
The appraiser will use several data points to help them gauge your property’s value.
An appraiser takes into account recent sales data in your area. They look at comps (comparable houses) to estimate what the house is worth relative to others that sold. To adjust for differences between properties, an appraiser looks at factors such as the:
Using online data plus the walkthrough, they’ll make adjustments as needed to determine the appraised value.
After an appraisal is completed, the lender uses the appraised value to finalize the terms of your loan. The appraisal helps confirm the property's market value.
If the home appraises at or above the purchase price, things typically move forward smoothly and you’ll proceed with your financing as planned. In some cases, the appraisal may come in higher than expected. Don’t worry, the seller can’t renegotiate a higher price at this point. Although this may not directly impact your loan, it’s like icing on the cake– you may instantly gain additional equity in the property.
Sometimes, the opposite can happen where the appraisal comes in lower than the purchase price. This has an impact on your financing because the lender will base the loan amount on the appraised value, not what you offered to pay. In this situation, you would need to come to closing with additional funds.
For instance, if you agree to buy a property for $300,000 but the appraisal comes in at $290,000, the lender will calculate the loan based on $290,000. This means you'd need to cover the $10,000 difference out of pocket because the loan amount would now be based on $290,000 even though the purchase price is still $300,000.
Hopefully a worst-case scenario never happens, but if it does, you do have some options. You can try to renegotiate the purchase price with the seller. Another option is to dispute the appraised value, which involves providing evidence such as comparable properties that recently sold that support your initial purchase price. Appraisals can make or break a deal, so it’s crucial to keep this in mind when making your initial offer. Be sure your offer is backed by solid data for exactly this reason.
Another condition of your loan approval is to have a fully paid insurance policy for your rental property. An insurance policy provides protection in the event of damage, theft, liability claims, or natural disasters. It protects both you and the lender by ensuring that the property can be repaired or rebuilt without financial hardship.
As you select your insurance provider and policy, here are a few tips to keep in mind to ensure a smooth process:
Behind the scenes of your loan application, there’s a title review taking place. And no, it has nothing to do with calling your house 'Mrs.' or 'Mr.'—it has to do with property ownership and inheritance. Sometimes when properties change hands, they aren’t transferred correctly, leaving the claim to ownership in dispute. A title review is a way to avoid this situation by making sure that there are no other claims on the property and making sure that the title is recorded correctly with the county. In most cases, the title company and lender will work together to ensure a clear title before closing.
One of the biggest steps towards closing is receiving your financing approval, which can sometimes be referred to as “clear to close.”
Financing approval means your lender has officially agreed to move forward with your loan, based on a thorough review of your financial profile and the property. This process typically involves submitting supporting documentation, an appraisal to confirm the property’s value, insurance is paid, and a review of the title. These steps help the lender assess risk and finalize your loan terms.
Once your financing is approved, you're almost at the finish line! At this point, your closing date will be confirmed. The only thing left to do before closing is to review your HUD statement.
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Before closing, you’ll receive something called a HUD-1 settlement statement from the title company. In some states, this may also be called a closing disclosure– they essentially serve the same purpose.
It’s a highly detailed statement of all the costs and credits associated with the purchase that shows the buyers on one side and the sellers on the other. Some examples of what you may see as a buyer include:
Reviewing the HUD-1 before closing ensures transparency and gives you a chance to catch any errors. Take the time to review these line items one-by-one and don’t be afraid to ask your lender questions along the way.
Have questions? Waltz is here to help!
Congratulations!
You’ve done the hard work to get to the closing table. You’ve gathered documents, navigated underwriting, and secured financing.
Now, you're ready for the final step of the process. Closing involves signing the necessary documents, transferring ownership, and funding the loan. When working with Waltz, we simplify the process, you may be able to review and sign most of your documents digitally, without setting foot in the United States*.
Now that you know what to expect, are you ready to get a quote? Get started with Waltz.
*Depending on the state and county of your rental property you may be able to close remotely. This varies, so be sure to check with your Waltz representative prior to closing.
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