The 12 Steps of Real Estate Closing
You’ve found the house. You’ve placed the offer. They’ve accepted your offer. Now you’re closing. What is closing? It’s what happens when you finally sign the papers that make the house yours. We want to explain what you can expect from the closing process–from the offer acceptance to the moment you’re handed the keys.
What is escrow?Escrow is an account that holds all of the money and documents involved in the purchase of your home into the hands of a third party. This is the best way to make sure that neither the buyer nor the seller gets ripped off.
Do a Title Search and Obtain Title License
This is important, a title search and title insurance will give you a legal safeguard when you buy your home. This way, no one can try to claim your home as theirs later. A title officer will perform a title search to make sure that there are no problems. For example, if there’s a third-party claim on the title your claim to the house can come into question. This step is critical for your peace of mind.
Find an Attorney
Hiring a real estate attorney is optional, but we recommend it. Even the most educated people can have difficulty understanding their closing documents completely, so having a second opinion will likely be useful when you’re searching for problems in your paperwork.
Negotiate Closing Costs
The escrow company isn’t your close mutual friend. It’s a business, so naturally, there are going to be fees for their services. Thus, it is advisable to get as much information to understand every detail of the paperwork to avoid junk fees. These include administrative fees, application review fees, ancillary fees, email fees and more. Don’t just take every fee they throw at you –stand your ground and usually junk fees can be reduced, if not eliminated altogether.
Complete the Home Inspection
While it’s not required, a home inspection is a very good idea. In fact, home inspections are necessary so make it a requirement. When a realtor shows you your dream home — you will see beautifully staged well lit rooms, with brand new appliances, and polished fixtures. It is designed to make you fall in love. A home inspection will take you deeper, making sure that your dream home isn’t a damaged cardboard hut with a convincing makeover. If there are serious problems with the house, you’ll have an opportunity to ask the seller to make the necessary repairs or back out of the deal.
Complete the Pest Inspection
This is separate from the home inspection, and the name is relatively self-explanatory. The pest inspection involves a specialist making sure that your home doesn’t contain any termites or carpenter ants — wood-destroying insects that can become an expensive hassle if left unchecked. You’ll want to be sure that the problem can be fixed for a reasonable cost, or for a cost that the seller is willing and able to pay, before you complete your purchase. Most mortgage companies will require that pest problems — even minor ones — be fixed before you can close.
Renegotiate the Offer
If the home and pest inspections reveal any problems, you may want to renegotiate the purchase price with the seller. That, or ask the seller to pay for the repairs. Signed a contract that says you’ll purchase the property “as is”? You may not have much leverage in getting repairs or a price reduction, but it never hurts to ask. And if the seller is unwilling to reduce or repair, you can still back out without penalty if the problem in question is too significant to let slide. Learn more about renegotiation here.
Lock Your Interest Rate
If you have a good lender, they will watch interest rates for you and inform you when rates are low so you can lock them. Interest rates are unpredictable — they fluctuate constantly, so agonizing over getting the lowest possible rate is essentially useless. Be satisfied with a rate that you think is reasonable given market conditions, loan type and your credit score, and that you can afford comfortably.
If your real estate agent is good at their job, your purchase offer should be contingent on several conditions such as your home and pest inspection, full disclosure by the seller of any known problems, and the completion of agreed upon repairs by the seller. These contingencies are usually removed in writing by certain dates, which should have also been included in your offer, but can be removed passively if you don’t protest them by their specified dates.
When you signed the purchase agreement, you most likely deposited earnest money in order to let the seller know that you are serious about your intent to purchase the home. If you back out, the earnest money will go to the seller as compensation. If the seller backs out, the money is returned to you. In order to complete your purchase, you’ll need to deposit the rest of your down payment and closing costs into escrow. The earnest money is applied towards your deposit.
Before you sign your closing papers, you should be able to walk through the property one more time. This is to make sure no damage has occurred and nothing was removed that was included in the purchase. It serves as visual confirmation that .you won’t be ripped off. For an idea of what you should look for during the final walk-through, check out this article.
Sign the Papers
Finally! One of the most important steps of closing is signing the paperwork. It is important to read each page carefully — the fine print will have a major impact on your life for years to come. Don’t feel pressured to rush by notaries and mortgage lenders — it is important to understand what you will be legally responsible for. Make sure the interest rate is correct and that there’s no prepayment penalty. If any fees are off by more than 10%, make a fuss about it.
The closing process may seem laborious, but the worst part is waiting for everything to come together. Make sure to occupy your time instead of agonizing and sitting on your hands, and enjoy a smooth and knowledgeable closing process.
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