How the Real Estate Closing Process Works
Many first-time home buyers have heard the term “closing” from their relator several times but don’t actually know what they’re referring to. In this instance, “closing” is the process by which the sale of a property is completed and ownership is legally transferred from one person to the next. This is a rather long and difficult process, and those who haven’t experienced it before are rarely aware of what exactly lies ahead. In order to help you prepare, check out this brief summary of the closing process from our Miami real estate lawyers.
“Escrow” is an account that’s held by a third party which facilitates the transfer of the ownership of a piece of property as well as the money for that transfer. This is to help prevent either party from being ripped off in the deal by having a neutral third party involved.
Do a Title Search & Obtain Insurance
The first thing you should do is research the title on a piece of property to make sure the seller who claims to own it is actually the true owner. Make sure there are no tax liens or other claims of ownership (such as a spurned relative who was left out of the will). These issues will have to be resolved before the property can be sold.
Find an Attorney
The contracts and legal documents associated with the purchase of a home can be extremely complex and difficult to understand. How do you know that everything written is both fair and in your best interests? Having an attorney on your side to help you with the closing process can facilitate a smooth and surprise-free sale and get you to your new home quickly.
Get Pre-Approved for a Mortgage
This step is not required to buy a home, but it’s strongly advised and can make closing a deal much quicker. Getting approval from a lender signals that you have a strong financial backing and are serious about making the deal work. This not only gives you additional bargaining power with the seller, but it also gives you the ability to lock your rate.
Negotiate Closing Costs
Escrow companies aren’t free, and someone’s going to have to pay for their services. Generally, the buyer pays these closing costs, however, buyers may be able to negotiate to have the seller pay these costs as part of the deal. Additionally, both sides will want to be well aware of what they’re paying for with escrow companies, and speak up if you notice any “junk fees,” or miscellaneous charges that are purely designed to boost their bottom line, like email fees or processing fees.
Get a Home Inspection
That home you’ve fallen for may look beautiful, but what does it look like under that façade? What condition is the structure in? What about the plumbing? These are all questions that could be answered by a thorough home inspection. Hire an inspector to take a look at the place and let you know of any red flags. Any severe damage may be a good enough reason to call off the deal.
You’ll also want to get a pest inspection, which looks for termites, ants, rats, and other infestations that will be a major issue. If they find any issues, you may want to negotiate the cost of fixing this issue with the seller.
Lock Your Interest Rate
If you haven’t done so already, you’ll need to lock your interest rate with your lender. Good lenders will let you know when rates are at a low point so you can lock it then and not be at the mercy of the fluctuating market.
If you have a real estate agent helping you with the purchase, their offer probably included a few contingencies, or circumstances that must be met in order for you to fully agree to the deal. This should include:
- You being able to obtain financing at a rate you can afford (which you may or may not have done previously)
- The home inspection showing the property is clear of any major issues
- The seller fully disclosing any problems they are aware of
- The pest inspection not revealing any major pest-cause damage
- The seller completing any repairs they have agreed to
When you sign a purchase agreement, you’ll have to put down a certain amount of money as “earnest money.” This is to show the seller that you are acting in good faith and that they should take the property off the market. If you back out of the deal once they do so, this earnest money will go to the seller as compensation. If they back out, the money will come back to you. If the deal is completed, the earnest money will go towards your down payment.
Once the deal is agreed upon and all contingencies are met, you’ll need to put in the rest of your down payment.
Do a Final Walkthrough
Before you sign the final sale papers, you’ll want to look at the property one last time. Make sure everything included with the sale of the property (such as any appliances that are sold as part of the agreement) are still there, and that any repairs that should have been completed have been done to an acceptable extent.
Sign the Papers
Bring a brand new pen to this ordeal because you’re going to be signing a lot of paperwork. Don’t be surprised if there are more than 100 pages that you must put an initial or signature of some form on. Read each page carefully, especially the financial documents, as they will influence your financial situation for as much as the next 30 years. Make sure there is no pre-payment penalty and that the interest rate listed is the one you locked in. If you are paying closing costs, make sure they are close to the good faith estimate you were given at the outset.
It’s also a good idea to have an attorney present to assist you with the signing process and answer any questions you may have on the final paperwork. They can also bring any red flags to your attention so you can have them resolved before you make any formal agreements.
If you need assistance with the closing process on your home purchase, call The Morgan Law Group now at (844) 818-0774 to request a consultation!