Purchasing a new home can be an intimidating process. There’s a lot to process – questions you’re not sure how to answer, terms you’ve never heard of, and of course, the seemingly never ending stream of DocuSign forms your realtor keeps sending you.

Understanding the purpose and details of each of these documents, as well as the implications they have on your home buying transaction, will help you navigate the waters of real estate with more confidence and mitigate the risk of expensive deal-killers that can catch first- (or second-, or third-) time home buyers by surprise.

Here’s our detailed guide to the most important documents you’ll see prior to and at closing.

Before closing day

• Buyer representation agreement

This agreement is a legal document formalizing your working arrangement with your buyer’s agent. The language in this document might look like legalese, but don’t panic – here’s a couple of key things to look for in your buyer representation agreement:

1. 1. Exclusivity: Exclusive agreements require you to work with only one agent in your home search.
   2. Term: How long is the contract valid? Usually this is somewhere between three and six months.
   3. Compensation: This section gives you all the details you need to know about commissions in your prospective deal.

• Preapproval letter

A pre-approval letter is a document provided by your lender that details the mortgage amount you’re pre-approved to borrow. This is one of the first documents you’ll need to start your home search, as it tells agents and sellers that the offer you’re making is a serious one.

• Loan estimate

This is another form sent to you by your lender. By law, lenders are required to send a loan estimate within three business days of receiving a completed loan application.

Here’s what you can expect to see in your loan estimate:

1. 1. Interest rate (estimated)
   2. Monthly mortgage payment
   3. Tax & insurance costs
   4. Closing costs (estimated)

We should note here that a loan estimate is not a guaranteed indication of your loan status. Instead, it’s a sample of the proposed terms of the loan that you can use to weigh offers from different lenders.

• Purchase agreement

Once you’ve submitted an offer to the seller and that offer is accepted, a purchase agreement will be drawn up with the details of the transaction. The purchase agreement formalizes your deal with the seller and legally binds you to the terms of the contract. It’s in this contract that you’ll find the purchase price, exact commission structure, closing date, and other important information.

If you have questions after reading through the purchase agreement, ask your realtor.They’ve seen hundreds of them and can clarify any doubts or confusion.

• Home Inspection report

Before closing on a home, you should hire a professional home inspector to conduct a thorough inspection of the home’s condition. The resulting report is lengthy, as it should be, containing summaries, pictures, notes, and checklists about every element the inspector looked at in the house. It will also include a list of any suggested repairs that should be made.

• Appraisal

The home inspection is all about the home’s physical condition. The appraisal, however, is focused on the value of the property. Before a mortgage lender will finalize your home loan, they’ll require an appraisal to verify that the home you’re buying is worth the agreed upon purchase price.

At closing

• Closing disclosure

The closing disclosure is similar to your loan estimate, but instead of giving you estimates of what your deal could look like, this one gives you the actual terms of your loan. Your lender has to provide this document three business days before your scheduled closing date to give you time to review the exact terms and costs.

• Deed of trust

This document gives your lender the right to take back (foreclose on) the home you’re purchasing if you are unable to repay the loan as agreed. 

• Deed

At closing, the seller will sign the deed and transfer ownership to you and you’ll receive a copy with the rest of your closing documents.

• Declarations

Declarations are statements that verify that all of the information that has been provided throughout the transaction is accurate. This includes an affidavit stating that all required repairs were made prior to closing as well as the homeowners insurance declaration, which is a summary of your insurance coverage.

The homebuying process is intimidating – but don’t panic! By taking the time to understand the details of these important documents and contracts, you’re off to a great start. Just remember, real estate contracts are legally binding, so read them carefully and ask your lawyer or your realtor if you have any questions before signing.