A real estate deal is typically a lengthy and tedious process including numerous phases and procedural formalities. Closing on a house occurs when you sign the paperwork that makes the house yours, but there is a long list of things that must happen before that fateful day arrives. Between the time your offer is accepted and the time you receive the keys to your new home, there are 12 stages to follow.
Why Mortgage Pre-Approval Is a Good Idea
It’s a good idea to get pre-approved for a mortgage before you start looking for a property, unless you’re an all-cash buyer. While having a pre-approval letter is not required to consummate a sale, most sellers do expect buyers to have one. Having one can help speed up the process and provide you with greater bargaining power when it comes to negotiations. It communicates to the vendor that you are well-funded. It also gives you the option of locking in your interest rate, which means you’ll be more likely to get a good deal.
Getting pre-approved for a mortgage also informs you of the maximum amount you can spend on a home. It saves you time and effort by allowing you to focus your search on properties that meet your budget.
Finally, pre-approval for a mortgage offers you more time to respond to any potential discrimination. Assume you believe a potential lender has treated you unfairly. In that situation, you might look for funding elsewhere and pursue legal action afterwards. Pre-approval protects you from a single skewed lender destroying a good offer and postponing your aspirations. Following are the procedures you’ll need to take to close the deal once you’ve discovered the perfect house and a buyer has accepted your offer.
1. Open an Escrow Account
A third party holds an escrow account on behalf of the buyer and seller. A property sale entails a series of stages spread out over several weeks. As a result, bringing in a neutral third party is the best method to protect either the vendor or the buyer from being tricked. This third party can keep all of the money and documentation associated with the transaction until it is completed. Following the completion of all procedural formalities, funds and papers are transferred from the escrow account to the seller and buyer, ensuring a secure transaction.
2. Title Search and Insurance
A title search and title insurance provide legal protection and comfort of mind. They ensure that no one else can claim a property after you have purchased it. A title search is a review of public documents to establish and validate a property’s legal ownership and to determine what claims, if any, are pending against it. If any claims exist, they may need to be settled before the buyer may take possession of the property.
3. Hire an Attorney
While legal assistance is not required, it is usually a good idea to have a professional legal opinion on your closing documents. Even for well-educated people, the intricate jargon in them might be difficult to comprehend. A professional real estate attorney’s perspective can provide several benefits for a reasonable charge, including clues of any potential difficulties in the documentation.
4. Negotiate Closing Costs
All related services and entities require money, from opening an escrow account to engaging a real estate attorney. If you’re not careful, these charges can quickly add up to a significant sum of money. Home and pest inspections, for example, are essential to avoid purchasing a home with hidden—and costly—problems. However, many of these services take advantage of people’s ignorance by charging high rates. Even normal closing service fees might be costly.
5. Complete the Home Inspection
A physical house inspection is required to identify any potential issues with the property and to examine the surrounding area. If you discover a major flaw in the house during the inspection, you’ll have the option to back out or ask the seller to rectify it. You can also get the seller to pay for the repairs (as long as your purchase offer includes a home-inspection contingency).
6. Get a Pest Inspection
A house inspection is not the same as a pest inspection. It entails a professional inspecting your home for wood-destroying insects such as termites or carpenter ants. Pests can be particularly damaging to properties made mostly of wood. Even small insect issues must be resolved before the loan can be closed, according to several mortgage companies.
7. Renegotiate the Offer
Even if your purchase offer has been accepted, you may want to renegotiate the price to include the cost of any necessary repairs discovered during inspections. You might alternatively keep the purchase price the same while negotiating with the seller to cover the cost of repairs. There’s no harm in asking, even if you’re buying the house “as is.” If a severe fault is discovered that the seller can’t or won’t address, you can still back out without penalty.
8. Lock in Your Interest Rate
Interest rates, notably those on mortgages, can be volatile and alter frequently. Rates are determined by a variety of factors, including the applicant’s credit score, geographic region, property type, and type of loan asked for.
9. Remove Contingencies
The following five conditions should be included in your real estate offer:
- Obtaining financing at a rate that does not exceed your financial means
- The home inspection revealed no major issues with the property
- Any known concerns with the residence are fully disclosed by the seller.
- The pest inspection revealed no serious infestations or structural damage to the house.
- Any agreed-upon repairs being completed by the seller
Active approval is a process that requires such contingencies to be removed in writing by particular dates stated in your purchase offer.
10. Meet Funding Requirements
When you signed the purchase agreement, you most likely put down earnest money. A deposit provided to a seller to demonstrate the buyer’s good faith, seriousness, and real interest in the property purchase is known as earnest money. If the buyer backs out, the earnest money goes to the seller as compensation. The money is returned to the buyer if the seller cancels.
11. Final Walk-Through
One of the last things you should do before signing your closing documents is to go over the property one last time. You want to check sure there hasn’t been any damage since your last inspection. You should also double-check that the vendor has done the required repairs and that no new issues have arisen. Finally, double-check that nothing from the purchase agreement has been removed.
12. Understand the Paperwork
Closing a real estate transaction requires a lot of paperwork. Despite the fact that there is a stack of papers filled with legal jargon and sophisticated legal phrases, you should read them all. Consult a real estate attorney if you don’t understand something. Your agent will also assist you in understanding any legal language.
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