After years of hard work, saving and investing your money the time has come. It’s time to buy a house! You’re excited and ready for the homeowners experience you’ve always dreamed about. You’ve found a realtor and they’ve helped you find the perfect home. It appears that the home meets your requirements and you have the funds to seal the deal. Time to close. When you thought all was well, you run into a few problems. This is a common scenario amongst new home buyers. Just when you thought the process was going smoothly, you hit a roadblock. Your initial excitement can turn into frustration. This is why it’s important to understand how to close on a home before you start your home search. You will be able to avoid any potential issues that could postpone or stop the home closing process.
Breaking Down the Steps and What Could Go Wrong
There are a few steps one should take to close on a home. Do everything correctly and your home closing process will be simple. Executing the steps poorly will cause things to go wrong. Here’s what you should do and common issues you may run into:
Step 1: Double Check Your Personal Credit Report
If you plan on financing your home purchase, you’ll want to verify that you meet the minimum mortgage credit requirements to get approved for a home loan. Most mortgage lenders require that you have a clean credit history, free of derogatory or delinquent accounts that deem you uncreditworthy. Your debt-to-income ratio is also important. Having a high amount of debt in comparison to your income could disqualify you for a home loan.
Step 2: Apply for a Mortgage Loan with Several Lenders
Before applying for a mortgage loan, you should consult with your realtor. Most realtors will refer you to several mortgage lenders to apply for a home loan. According to Freddie Mac, 80% of buyers who get an additional quote will save up $2,000 during the life of the home loan and buyers who get up to 5 quotes will save up to $4,000.
You can pre-apply with several lenders to find out how much you will qualify for and compare the rates. Applying for a mortgage loan with one lender could result in you being offered a rate you can’t afford. Choose the offer with the best rate and ask the lender to lock-in that rate for the life of your loan. If you don’t your mortgage payments could increase over time.
Step 3: Submit a Well Thought Out Purchase Offer
After your realtor finds your desired home, it’ll be time to submit a purchase offer to the seller. This is the first step in letting them know you’re serious about closing on the home. Review the purchase offer with your realtor and the seller to ensure everyone understands the contingencies of the offer. Example contingencies can include the buyer getting pre-approved for a mortgage loan at an affordable rate and not finding any issues with the home during inspection. The seller should have a clear understanding that the purchase offer can be rescinded if these contingencies are not met.
Step 4: Deposit the Funds into an Escrow Account
You should work with a reputable escrow agency to hold the funds that will be used as the down payment for the home until the transaction is complete. This gives both the buyer and seller peace of mind during the home closing process. If you don’t have the funds in an account with a reputable escrow agency, the seller of your desired home will not take you seriously. They will likely move forward with a different buyer. You should also be aware of any other fees that will need to be paid out during the process and deposit that money into the escrow account as well. A shortage of funds could delay the home closing process.
Step 5: Verify Ownership of the Property
It’s important to work with a title search company to ensure the seller of the property is the legal owner. Title search companies will use public records and other sources of information to determine if the seller is the true owner. If you skip this step you could end up spending your money on a property that doesn’t belong to the seller, causing you to lose those funds and the property.
Step 6: Get Title Insurance for Your Protection
Title insurance will protect you from the financial losses one could incur when there are issues with the title of the home (like a claim or lien). Even though you will verify the ownership of the property through a title search, it’s still best to protect yourself from financial losses. In some cases, a relative, spouse or other individual may attempt to prove they are the real owner of the property and that it can’t be (or shouldn’t have been) sold.
Step 7: Retain a Real Estate Attorney
Retaining a real estate attorney is critical because you will need them to review all legal documents associated with closing on the home. The home closing documents can be complex, and a real estate attorney can break down the information for you, to ensure you are getting a fair deal. The best attorneys will be able to spot issues with the paperwork and let you know in advance.
Step 8: Find Out the Procedural Costs of the Transaction
Procedural costs consist of loan closing fees, appraisal fees, processing fees and other administrative fees. This can increase the costs associated with closing on the home. Find out the amount of these fees and discuss them with your attorney. They may be able to give you advice on negotiating a reduction in these fees (as often times they are inflated). Once you have the final amount you should deposit the funds into escrow. That provides further security for buyer and seller knowing that all funds needed to close on the home are available.
Step 9: Have the Home Inspected
The condition of the home should be evaluated by a home inspector. If there’s anything that needs to be repaired, you will find out during this step. If there are things that need to be repaired, you can ask the seller to fix them or cover the cost associated with fixing them. You should also hire a pest control expert to inspect the home to confirm it isn’t infested with wood eating insects like termites.
Step 10: Renegotiate Your Original Purchase Offer
Based on the results of the home inspection, you may be able to renegotiate your original purchase offer. If there are issues with the home such as faulty windows or leaky pipes, you may be able to get the purchase price reduced. If that isn’t possible and the seller won’t cover the cost of repairs, you can rescind your offer. This could save you thousands of dollars in home repair costs that you may not want to be responsible for.
Step 10: Revisit the Property Before Closing
If you’ve found any issues during the home inspection process (and the seller agreed to fix them) it’s critical that you do another walk-through of the home before signing the closing documents. You can check to be sure that all repairs were made (if promised) and everything that is included in the purchase price is still in the home.
Step 12: Review the Final Paperwork with Your Real Estate Attorney
Before signing the final paperwork, go over everything with your attorney. If there is anything you haven’t had him review already, now would be the time. You want to have a thorough and complete understanding of what you’re agreeing to before signing on the dotted line. This will help you be confident you are making the absolute best decision.
Don’t Rush the Process, It Could Cost You in the Long Run
The seller and your realtor may try to rush the process so they can get their money. But it’s important that you follow each step. The average home closing process can take around 50 days when each of these steps are executed properly and no issues arise. If you skip any of the steps it could end up costing you more money over time, long after your realtor and the seller have been paid.
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