Wisconsin Homebuying and Closing Process
- Wisconsin's homebuying process is similar to other states where a real estate attorney (or a title company) is used to consummate the transaction and prepare all the closing documents.
- In Wisconsin, buyer and seller often consummate the transaction at the same closing table.
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 and accepted.
- Concurrently, a deposit, or earnest money, is paid to the buyer's attorney, broker, or escrow agent (never to the seller directly). Sometimes this deposit may be broken into two consecutive payments.
- The signed contract is sent to an attorney or title company to begin the title search and all other work related to transferring and changing the title to the new owners and preparing the title commitment. While some wait until later in the process to do a title search, it's not uncommon for liens or assessments to derail a transaction, so buyers can benefit from learning these things early. Put simply: don't be afraid to ask to run a title search early, even if that means you might have to pay for it yourself.
- 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 real estate condition report is required by Wisconsin law to be provided by the seller as an addendum to the contract and must be signed by both buyer and seller (or the deal does not proceed). If the house was built before 1978, a specific EPA-mandated lead paint disclosure will also be required (attesting that, to the seller's knowledge, there isn't any lead paint in the home). It is very important for buyers to review this form carefully, as certain defects found during inspections that were previously disclosed by the seller cannot be grounds for terminating the agreement.
- The buyer elects to perform inspections on the property if agreed upon in the contract. Any inspections must be completed by a number of days after the signing of the contract (which can be referred to as the inspection contingency date). The types of inspections vary by property type and situation (and locale), but in Wisconsin, a home inspector generally inspects the home, and if necessary, a lead-paint inspection, mold inspection, pest inspection, and a radon inspection are somewhat common as well.
- If buyers find any defects during inspections that were not disclosed by the seller, they can request, in writing, that the seller remedy the defect (either through making repairs or providing closing cost credits) to the buyer's satisfaction. If the seller is unable or unwilling to remedy the major defect, a the buyer can walk away without penalty. However, in many cases, if a buyer finds a defect that was previously disclosed, they cannot terminate the agreement without losing their earnest money deposit. Buyers should review their contract carefully to understand this clause.
- The buyer may also negotiate for a home warranty 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 Wisconsin:
- 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 Wisconsin.
- 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.
- 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:
- 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 eligibility 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.
- 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. If the appraisal comes in lower than the purchase price, the buyer can often back out of the deal without penalty - it's important to check your specific contract for any appraisal contingency clause. If absent, the appraisal contingency is functionally built in to the loan contingency, as appraisal at or above purchase price is a condition lenders require.
- The financing contingency (also known as a loan contingency) is removed by the buyer before the expiration of the financing contingency date as defined in the contract as a number of days from the signing of the contract. This contingency is removed by sending a copy of their loan commitment or approval to the listing agent or other designee (such as a real estate attorney). If this date lapses without the buyer providing a loan commitment, then the seller can terminate the agreement (and the earnest money deposit goes back to the buyer). If the buyer is rejected and provides this proof to the seller, a seller can choose to extend the financing contingency date to allow the buyer to pursue financing again, or terminate the contract without penalty to any parties.
- 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.
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 process itself general takes place at one table (either at the office of an attorney, lender, or title company), 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 immediately thereafter 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:
- A final cash figure for what a buyer needs to bring to the closing in the form of a cashier's check is calculated by the closing attorney or lender. 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.