Montana Home Buying and Escrow Process
- Montana's homebuying process is similar to other states where a closing agent (who is usually an attorney, escrow agent, or representative from a title company) is used to consummate the transaction and prepare all the closing documents.
- In Montana, buyer and seller often consummate the transaction at the same closing (or 'settlement') table.
- Montana has its own peculiarities to consider when buying, such as conveyance of mineral or water rights and obtaining flood or hazard insurance if the property is in a flood plain.
Step by Step
Part 1: Disclosures, inspections, and title
These are the initial tasks once a buyer is in contract, and are most often done in parallel to Part 2: The mortgage process:
- An offer is accepted by the seller and a contract is signed.
- Concurrently, a deposit, or earnest money, is paid to an escrow agent, an attorney, or broker (never to the seller directly).
- The signed contract is sent to a title company or attorney or to begin the title search and all work related to transferring and changing the title to the new owners and preparing the title commitment and title insurance. In Montana, it's common for the seller to pay for this part of the process, but anything is negotiable. Tip: the earlier a title search is done, the quicker buyers can be appraised as to any defect (liens or assessments on the title) that can affect the value of the property.
- 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 form called a Seller's Property Disclosure Statement is provided by the seller on or before the day the contract is signed. Sellers may see making these disclosures as beneficial to themselves, and believe that buyers will build these pre-disclosed facts into the contract price (and thus sellers may be reluctant to provide any credits for these defects).
- If the house was built before 1978, a specific EPA-mandated lead paint disclosure will also be required, stating whether or not the seller has knowledge of any lead paint present on the property.
- Sellers may also provide a water rights acknowledgement addendum describing any water rights being conveyed with the property for sale.
- The buyer elects to perform inspections on the property by a specific date, indicated in the inspection contingency section of the contract. This date is called inspection contingency date. The types of inspections vary by property type and situation (and locale), but in Montana, a licensed home inspector generally inspects the home first, and other inspections and tests can be ordered if revealed to be necessary by the initial inspection. Failure to complete inspections and/or bring up any defects with the seller before the expiration of the inspection contingency date is the same as waiving the inspection contingency. A property survey may also be ordered during this stage (many lenders will require it), and a radon inspection may also be performed in certain areas.
- If the buyer finds something unsatisfactory during inspections they can walk away immediately and recoup their earnest money deposit. Or, they can give the seller two options to respond: repair whatever problems were found and provide certification from an inspector that the problems have been repaired, or negotiate a settlement (such as closing cost credits) in lieu of making repairs. If no settlement is reached by a certain date (check your contract), then the buyer can declare the agreement null and void and recover their earnest money deposit.
- The buyer may also negotiate for a home warranty (a.k.a. 'home protection plan') that covers major appliances from failure for a time period after the sale, typically a year.
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 Montana:
- 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 Montana. Of course, well before this point, a pre-qualification or pre-approval with a lender should have been acquired.
- 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.
- The buyer sends a series of personal financial disclosures to their lender. These vary by situation, but the most commonly requested documents are:
- Several months of statements for each bank account a borrower holds (including any investment accounts)
- Several months of statements for any outstanding loans, lines of credit, or other liabilities. This can also include documentation of rent payments.
- Up to two years of tax returns, released to the lender via an authorization submitted by the buyer using IRS form 4506-T.
- Recent pay stubs and contact information for each borrower's employer. The number of pay stubs varies by situation.
- 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. If there's something that affects how much money you have on hand that isn't shown by simply looking at your salary, be prepared to document it.
- Explanation of any credit inquiries
- Substantiation of any large deposits or cash gifts that aren't 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 gift letters from those that gave you the cash gift, stating that the gift was not a loan. They may also ask for itemized deposit slips. The exact amount that triggers this requirement varies by situation (for instance, a $1,000 cash gift may be material to a single borrower that makes $35,000/yr but may not be material to a borrower that makes $350,000/yr), so it's good practice to ask your lender if you suspect you might have a material cash gift or large deposit - so you aren't surprised by this at the last minute.
- Repeated and updated documentation of any of the above. Keep in mind: to a lender, anything can happen to a borrower's personal financial situation and credit during the escrow process. 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. Any material changes in these documents -or any element of your personal financial situation- may require the lender to reassess your eligability for the loan for which you've applied.
- The lender renders an approval decision, and if approved, issues a loan commitment letter, stating its willingness to fund the mortgage provided certain conditions are met. These conditions usually include appraisal (so the lender can confirm that the property you're buying isn't worth far less than you're paying) but will also generally include any material change in your situation -or the property- as initially disclosed to your lender.
- The financing contingency, or loan contingency, is removed by the buyer before the expiration of the loan contingency date, which is defined in the contract usually by 'as soon as financing is completed' but no later than a number of days after the planned closing date (allowing for the closing date to be pushed back to complete financing). The loan contingency is removed by sending a copy of their loan commitment to the seller's agent or designee thereof. In any case, if a buyer is rejected before the loan contingency date, they can usually walk away from the contract and recoup their earnest money deposit (provided they were diligent in applying and following up to pursue their mortgage).
- An appraisal is ordered by the lender or mortgage broker via a central directory of appraisers (often called an Appraisal Management Company or AMC). Choosing a specific appraiser is not possible, but a mortgage broker can reject an appraiser and ask for a new one. Most Montana contracts will include an "appraisal provision," also known as an appraisal contingency, that states that the property must appraise at or above a certain price, or the buyer can decide to walk away and recoup their earnest money deposit.
- Homeowners' insurance is purchased (or substantiated, if the property being purchased includes homeowners' insurance as part of association fees or similar arrangements), and proof of homeowners' insurance is submitted to the lender.
- Hazard insurance may be required by the lender to protect the asset from fire and storms. If the property is located on a flood plain, then flood insurance may be necessary as well.
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). This means not switching employers even if it results in a higher income, as counterintuitive as that may sound. It also means not leasing or financing a car, opening a new credit card account, or anything else that can affect your credit report.
Part 3: The closing itself
The closing, itself generally takes place at one table (either at the office of a lender, attorney or title company), where buyers sign all documents related to their loan and the transaction itself. After all documents are signed and payments exchanged, buyers generally take possession of the keys after the deed is recorded 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 make up closing are:
- As part of the prepartion for closing, the attorney or title company 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 or title company issues a title commitment. All paperwork for changing the title / deed and title insurance is prepared, and a final closing date is confirmed with all parties.
- A final cash figure for what a buyer needs to bring to the closing in the form of a cashier's check is calculated. This is based not only on a mortgage's closing costs but factors like property taxes and utilities paid in to date by the seller.
- A final walkthrough will often be performed up to the day before closing to verify the property is in the same condition it was when the process began, provided it's agreed upon in the contract.
- At the closing, or settlement, table, the buyer (and seller) sign all closing documents, including the HUD-1 (see a sample HUD-1 here), and the final loan documents.
- The buyer pays the remaining funds in their downpayment to the attorney or a representative of the title company who is acting as the settlement agent via certified funds.
- The representative from the title company or attorney will then record the transaction and deed with the appropriate municipality.
- The buyer receives the keys and, unless indicated differently in the contract, officially takes possession of the property.
This document is a community edited guide, is not legal advice, and is subject to changes, modifications, and may contain inaccuracies or out-of-date information. As with any important financial transaction, consult a real estate professional and/or an attorney. See our terms of service for more information.