For first-time homebuyers, closing on a home purchase can be like finishing a long and grueling race. Most closings take place within sixty (60) to ninety (90) days after the Contract is signed, and involve plenty of paperwork, a lot of signatures, a roomful of lawyers, and many checks changing hands. The procedure for contracting to buy a home in New York State differs from that in many other states. If you are planning to buy a home in New York State, you will need to become familiar with the basic steps and terminology – particularly if you have bought a home somewhere else before.

Here is a step-by-step guide to a typical residential real estate transaction in New York State.

Part 1:            Contract; Attorney Review; Inspections

1. Acceptance of Buyer’s Offer. The process starts when a Contract to Purchase Real Property (“Contract”) is submitted to Seller (typically drawn up by a real estate agent). Seller can accept, reject or counter the offer. Once an agreement has been reached amongst the parties and a deposit or earnest money has been paid to Buyer’s attorney or real estate agent[1], the Contract is then forwarded to both Buyer’s and Seller’s respective attorneys for review and approval.

2. Attorney Review and Approval. Most New York State residential real estate contracts provide for a seventy-two (72) hour attorney review, commencing once all parties have signed the Contract. During this period, changes can be made to the Contract, provided same are agreed upon by both parties. Also, either party can walk away during this seventy-two (72) hour period if either of their respective attorneys finds cause.

3. Most New York State residential real estate contracts provide for Buyer inspections of the premises – although Buyer can waive the right to inspect the premises during contract negotiations. The types of inspections vary by property type, locale, and situation, but common inspections in New York State include an engineer’s inspection (performed by a New York licensed engineer) or a home inspection (performed by a New York certified home inspector). Other inspections that may be performed include termite, radon, lead paint, and asbestos inspections. While an initial inspection may be performed before the deal is officially “under contract,” all inspections must be completed by the inspection contingency date indicated in the Contract. Based on the outcome of the inspections, a Buyer may modify their offer or ask for closing cost credits if any defects are found.

4. Other Certifications and/or Documentation. In addition to inspections, homebuyers in New York State may need to obtain certification and/or documentation of:
   • Buried Oil Tanks. Before homes in New York State (and elsewhere on the East Coast) were heated with natural gas, they were heated with heating oil. This oil and the buried tanks that once contained the oil are environmental hazards, and they must be decommissioned through a process subject to inspection and approval by the appropriate regulatory agencies in New York State. While decommissioning is not a requirement to complete the transaction, it does present significant risk to a new owner.[2]
   • Well Testing. Homes that have a buried water well may need to comply with local municipal laws that require testing of water wells to ensure environmental safety.
   • Flood Search. This is a survey of the property to assess its risk of flood damage.
   • Certificate of Occupancy. This is a document that proves the property can be occupied and lived in, and that it complies with zoning and building code regulations.[3]

Part 2:                        The Mortgage Process

1. Loan Application. A Buyer submits a loan application to their lender, either directly or through a mortgage broker. In New York State this is referred to as the Uniform Residential Loan Application.

2. Loan Estimate. Within three (3) business days, the lender provides a Loan Estimate[4] to the Buyer, which consists of a breakdown of estimated closing costs.[5]

3. Personal Financial Disclosures. At the request of the lender, the Buyer must submit a series of personal financial disclosures. These vary by situation, but the most commonly requested documents are:
   • Several months (typically three (3) months) of statements from each bank account a borrower holds (including investment accounts).
   • Several months of statements from any outstanding loans, lines of credit, or other liabilities. This can also include documentation of rent payments.
   • Up to two (2) years of tax returns, released to the lender via an authorization submitted by Buyer using IRS Form 4506-T.
   • Recent paycheck stubs (typically the last month) and contact information for each borrower’s employer.
   • 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.
   • An explanation of any credit inquires.
   • Substantiation of any large deposits or cash gifts that are not regular income. In some cases, a large cash gift may look similar to a personal loan by a friend or family member, and lenders will require what is referred to as a Gift Letter. A Gift Letter is documentation from those that gave you the cash gift, stating the gift was not a loan. They may also ask for itemized deposit slips.[6]

4. Lender Approval. If your loan is approved, the lender issues what is referred to as a Loan Commitment Letter, stating its willingness to fund the mortgage provided certain conditions are met.[7] Once the Loan Commitment Letter is issued, the Contract’s financing contingency may be removed.[8]

5. Appraisal.  The lender or mortgage broker orders an appraisal. If the appraisal comes in lower than the purchase price, a lender can decline to approve the borrower unless a change is made to the purchase price or the size of the down payment.

6. Property Hazard Insurance. The lender will require the purchase of property hazard insurance to protect its interest against physical damage. A Buyer typically must provide proof of coverage and a receipt showing payment in full for the first year of the loan.[9]

7. Title Insurance. The lender will also require the purchase of title insurance. Title insurance protects the lender against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property.[10]

Part 3:                        The Closing

1. Title Search and Review. Prior to closing, a title search is conducted to determine if there are any liens, assessments, or encumbrances affecting title. In New York State, Seller’s attorney needs to provide Buyer’s attorney with an original updated abstract of title, an updated property survey, a copy of the proposed deed into Buyer (together with state reporting forms entitled “RP-5217” and the “TP-584” forms), a smoke/alarm carbon monoxide affidavit, and the statement of taxes and copies of the tax and, if applicable, water/sewer bills. Once Buyer’s attorney receives all of the title documentation they will review same and begin the process of getting the commitment for title insurance.

2. Clear to Close. Provided title is “clean” or “clear”, and the lender has determined Buyer satisfied all conditions of its Loan Commitment Letter, lender will issue the ”clear to close.” At this time the respective attorneys will schedule a closing date.

3. Statement of Sale; Final Cash Figures. Seller’s attorney will prepare a Statement of Sale that breaks down how much money they should walk away with after brokers and attorney’s fees, taxes, and the like are paid off. It will list Buyer’s and Seller’s “debits and credits” in the transaction.   Buyer’s lender will then prepare a final cash figure in the form referred to as a Closing Disclosure[11], which outlines what Buyer must bring to the closing table in the form of a cashier’s check.

4. Final Walkthrough. A final walkthrough will often be performed the day of or right before closing to verify the property is in the same condition it was when the process began.

5. At the Closing Buyer will execute all closing documents, including settlement statements and final loan documents, and Buyer pays the balance of the purchase price (balance after credits, deposits, and any down payments).[12]

6. Recording of the Deed, Mortgage and any other necessary instruments. The last step in the closing process occurs when the new deed, mortgage, and any other necessary instruments (such as affidavits) are recorded into public record at the County Clerk’s Office within the County where the premises are located.

Taking the time to understand the closing process and preparing appropriately should make the entire process run much smoother when the day arrives.

[1] Never pay the deposit directly to Seller.

[2] Note, this is not the same as an above-ground oil tank that may still be in use to heat the property.

[3] If the premises consist of a newly constructed home, a lender will require a Certificate of Occupancy prior to closing.

[4] As of October 3, 2015 the Loan Estimate replaced the Good Faith Estimate or GFE.

[5] The final costs are likely to deviate from this estimate.

[6] The exact amount that triggers this requirement varies by situation.

[7] The most common condition is a satisfactory appraisal.

[8] Most Contracts provide for a loan contingency deadline. If Buyer has not received a Loan Commitment Letter by the deadline, Seller can either declare the contract null and void or extend the financing contingency deadline.

[9] Hazard insurance only covers physical damage, whereas homeowner’s insurance typically includes liability protection and hazard insurance. Your lender only cares about protecting against hazards, but along with protecting your equity you should cover your personal property, including furniture, appliances and clothing, and most importantly you should have coverage for personal liability for injuries to others or property damage you or members of your family cause to others.

[10] A lender’s title insurance policy (also known as mortgagee policy) will only cover the lender’s interest. You can purchase a separate owner’s (also known as a fee policy) to protect your interest. It is a one-time fee, unlike hazard or homeowner’s insurance, which premium must be renewed annually.

[11] As of October 3, 2015 the Closing Disclosure replaced the HUD-1 Settlement Form.

[12] A seller may elect to sign all of his or her required paperwork ahead of time and permit an attorney to represent them at the closing.