PLISTHUB: Real Estate Closing Process in 12 Easy Steps
Real estate closing is a lengthy and difficult process with numerous procedures and legalities. When you sign a document that makes your home yours, you officially complete it, but there is a long list of things that must be done before the day comes. From the time your offer is accepted to the time you receive the key to your new home, this article outlines 12 steps to follow.
- In most cases, real estate transactions take several weeks to complete and involve many moving pieces.
- Before signing on the dotted line, a deal establishes an escrow account and ends with a final walk-through.
- The complexities of real estate closings are a solid reason to employ a professional to help you navigate the legal complexities.
- Check with your loan officer and realtor about all possible fees, so you don’t get caught off guard with closing costs.
- When a buyer has been pre-approved for a mortgage, they can usually close their home sooner.
Why Is It a Good Idea to Get a Mortgage Pre-Approval?
It’s a good idea to get pre-approved for a mortgage before you start looking for a property unless you’re buying it entirely cash. While obtaining a pre-approval letter to close a sale is not required, most sellers want buyers to have one. When negotiating, having one can speed up the process and offer you greater bargaining power. It demonstrates to the seller that you have a lot of cash on hand. It also gives you the benefit of a rate lock, which increases your chances of getting a good interest rate.
Finally, pre-approving a mortgage gives you more time to react to possible discrimination. Let’s say you feel that a potential lender has discriminated against you. In this case, you can seek funding from other sources and take legal action afterward. Pre-approval will prevent a single biased lender from ruining multiple accounts and delaying your dreams. Once you’ve found the perfect home and the buyer has accepted your offer, here are the steps to closing the transaction.
12 Steps To Real Estate Closing
1. Opening an escrow account
The third party has an escrow account in the name of the buyer and the seller. A home sale involves several weeks-long stages. Therefore, the best way to prevent sellers or buyers from cheating is to use a neutral third party. This third party may keep all funds and documents related to the transaction until everything is settled. At the end of the process, money and documents are transferred from the blocked account to the seller and buyer, ensuring a secure transaction.
2. Title Search and Insurance
These 2 provide peace of mind and legal protection. It ensures that no one else can claim it later when you purchase the property. The title search is the study of publicly available records to determine and claim property ownership and to see what claims exist for that property. Any claims may need to be resolved before the buyer receives the property.
Title Insurance is indemnity insurance that protects owners from financial losses resulting from defects in title to property.
3. Hire an Attorney
Although legal advice is not mandatory, it is always best to seek a professional legal opinion on closing documents. Complex jargon can be difficult to understand even for highly educated people. The opinion of an experienced real estate attorney at an affordable cost can provide many benefits, including hints on potential paperwork issues.
4. Negotiate closing costs
All the services and legal entities involved cost money, from opening an escrow account to hiring a real estate attorney. These expenses can turn into large sums of money if you are not careful. For example, home and pest checks are crucial in preventing you from buying a property with potential problems and costs. But many services take advantage of consumers’ ignorance by charging high fees. Even fees for legitimate closing services can cost you a fortune.
An adverse fee is a fee that a lender imposes when closing a mortgage and is often unexpected by the borrower and not clearly explained by the lender. These costs can be added to a savory bill. Negative charges include administrative fees, application review fees, assessment review fees, incidental fees, processing fees, and settlement fees.
5. Inspecting the home
A physical inspection of the home is required to detect any potential problems and look around it. If you discover a serious problem with the home during the inspection, you will have the option to withdraw from the transaction or ask the seller to repair it. You can also ask the seller to pay you to repair it (provided your offer can include a home inspection).
6. Get a Pest Inspection
A pest inspection is separate from a home inspection. It is a professional who ensures that your home is free of wood-eating insects, such as termites or carpenter ants. Pests can wreak havoc on properties made primarily of wood. Many mortgage lenders require even minor pest problems to be resolved before you can complete the transaction.
Small infections can spread and are very devastating and expensive to treat. Pests that destroy trees are often fixed, but they must be addressed inexpensively. You can also have the seller pay for and remove the pest before purchasing. In some states, pest testing is mandatory by law, while in others, it is optional.
7. Renegotiate the Offer
Even when your purchase offer has already been accepted, you will want to renegotiate the value to reflect the value of any necessary repairs revealed by inspections. You may also keep the acquisition price identical, but try and get the vendor to purchase repairs. Whether or not you’re purchasing the property “as is,” there’s no harm in asking. You’ll also still back out without penalty if a significant problem is found that the vendor can’t or won’t fix.
8. Lock your bet
Interest rates, including mortgage rates, are volatile and subject to change. Rates depend on several factors such as geographic area, type of property, type of loan requested, and the applicant’s credit score. If possible, we recommend setting a fee per credit unit in advance. This avoids exposure to
market movements that could lead to higher interest rates than
before you complete your asset purchase. Even a 0.25% interest rate increase can dramatically increase your monthly payments and the time it takes to pay off your mortgage.
9. Remove Contingencies
Your realty offer should be contingent upon the following five things:
- Obtaining financing at a rate of interest to not exceed what you’ll afford
- The home inspection did not reveal any significant problems with the house
- The seller fully disclosed any known issues with the house
- The pest inspection does not show any major infestations or damage to the house
- Seller completes the agreed-upon repairs.
Such contingencies must be resolved in writing by the specific date specified in the purchase offer, referred to as an active authorization. However, contingencies are subject to passive approvals (also known as constitutive approvals). In other words, it is considered approved unless an objection is raised within the specified time limit. Buyers must understand the approval process and complete the required actions by the desired date.
10. Meet Funding Requirements
You possibly deposited earnest once you signed the acquisition agreement. Earnest may be a deposit made to a seller indicating the buyer’s honestness, seriousness, and genuine interest within the property transaction. The earnest goes to the vendor as compensation if the client backs out. If the vendor backs out, the money is returned to the client.
Additional funds must be deposited into escrow to complete the purchase. An initial deposit is usually applied to payments, so arranging various other necessary payments is important before closing the transaction. Failure to comply with this rule will result in the sale being canceled and serious visits to the seller. You will also continue to be charged for the various services you were using before the transaction was stopped.
11. Final Walk-Through
Before you sign your closing papers, one of the last steps should be to appear over the property one last time. You would like to ensure that no damage has occurred since your last home inspection. It would be best to verify that the vendor has completed the specified fixes and no new problems came up. Finally, check to determine that nothing included within the contract was removed.
Closing a home can take anywhere from a week to 60 days, depending on the property type and whether you’re paying cash or financing the acquisition.
12. Understanding the paperwork
Paperwork is essential to closing a real estate transaction. Despite a pile of paperwork filled with complicated legal terms and jargon, you’ve got to read it all on your own. If you do not understand something, consult a real estate attorney. Your agent will also help you understand any complex legal language.
Although you may experience compelled via way of means of the human beings anticipating you to signal your papers—including the notary or the loan lender—study every web page cautiously due to the fact the best print could have an extreme effect for years yet to come back.
In particular, verify that the fee is correct and any other agreed phrases are mentioned. More generally, evaluate your ultimate prices to the excellent religion estimate you acquired at the beginning of the method. Vigorously dispute any costs you believe you studied are illegitimate.
How Long Does It Take Close On a House?
Typically it takes 30 to forty-five days to close at the house, relying on a few elements like how promptly it takes to induce a domestic inspection and whether or not or now no longer you’re pre-authorized for a loan.
How Much Money do you have to Save Before Buying a House?
How much money you must save before buying a home depends on what proportion of a downpayment you must buy a house. If a home you wish to get costs, say, $200,000, you would possibly need a 20% downpayment, which might be $40,000, as an example.
Even if you do not need a 20% downpayment, and not every buyer does, it should be useful to possess the money to get hold of inspection fees and the rest that may come up when househunting.
When Is It Too Late to Back Out Buying a Home?
If you haven’t signed a contract to shop for the house, be at liberty to run away. If you’re “in a contract” with the vendor to shop for the house, getting out of the contract depends on the contingencies within the contract, sort of a home inspection, or if you cannot secure financing, were outlined within the contract. You will find yourself forfeiting your earnestness if you go away outside of any contingencies. So, if you opt you “don’t want the house,” then you will have some legal hoops to leap through, so it’s best to talk together with your lawyer.
The Bottom Line
Though it should seem to be the closing process could be a lot of labor, it’s definitely worth the time and energy to induce things right rather than hurrying up and signing a deal you do not understand. Be wary of any pressure to shut the deal fast. property agents and other entities helping you may want their cut, but they will not be around to worry about the issues you’ll face within the long term from a bad deal.