Closing on the sale of a home is the final step you will take when you buy or sell a property.
Rule number 1: Expect the unexpected.
Rule number 2: Learn all about the process in advance so that you can close with confidence.
Here’s what experts recommend:
1. Get Ready
Do you know the difference between a recurring and nonrecurring closing cost? There are a bushel of fees associated with a real estate transaction, and they must be paid by either the buyer or the seller. You should know basic definitions of the terms [1], and be familiar with the most common closing costs [2].
Each state has its own closing requirements. For example, in Kentucky, sellers pay most of the closing costs; in Maryland, the buyer picks up the tab. In some states, buyers and sellers share the costs. See who pays title and escrow fees [3] by county in California.
2. Shop Around
And not just for the best mortgage rate. Don’t forget that the time to think about closing costs is well before the actual closing. Start studying the fees associated with a home loan when you are choosing your lender. Closing costs with a traditional mortgage are not included in the amount you borrow. Shop and compare prices for closing services in your area, before you decide. See a list of common closing costs [2].
3. Budget for a Closing
It is famously difficult to put an exact number on closing costs at the beginning of escrow; which is why experts tell you to be sure that you have enough money set aside – and then some. Usually, that’s between 3 and 7 percent of your total purchase price.
Your lender is required to give you a “Good Faith Estimate” of closing costs (both the lender’s own and third-party costs), but an estimate is exactly that, and it’s common to find a sizeable difference between the estimate and your actual costs.
4. Be Forthcoming
When applying for a mortgage, be sure to furnish all the details your lender requests about your credit. Don’t divulge anything you don’t have to, but don’t deliberately hide blemishes. It could adversely affect the rate you’re quoted at the start of escrow.
5. Do Your Homework
When you come to that table to close your transaction, you’ll be asked to sign document after document, some of which you’ll barely get to glance at. Never feel rushed into signing anything and never sign a document that you do not understand.
Ask for copies of all the paperwork that you will be expected to sign in advance. Read them. If you have questions, be sure to contact the closing agent to get satisfactory answers. Or, ask your attorney to review all the paperwork for you.
Be sure that there are no “clouds” (problems) on title to the property. This is an issue you will want to be aware of in advance of the closing date. Make sure that all the conditions listed in the purchase agreement and all lender’s requirements have been met (by both sides). That way, you will arrive at the signing confident that you are in command of the situation.
6. Protect Yourself
Pay close attention to the preparation of the real estate purchase agreement. This is the basis for the closing instructions that the escrow or closing agent will follow. Once you sign this agreement, it is a binding contract. Be sure that any contingencies are written into that agreement, so that they are fulfilled for the closing.
For example, if you are the buyer, be sure to include a contingency clause in the purchase agreement that allows you to renegotiate or withdraw from the deal if the appraisal value is much lower than the selling price and your bank will not agree to a higher mortgage.
7. Know What’s Negotiable
Usually, it’s the fees associated with the lender. The more you know, the better your position will be. For example, you don’t always have to accept the lender’s recommendation for title insurance, home warranty coverage or flood insurance – you can shop for the best rate. Use the ClosingWizard [4] to find and compare title insurance policies and rates.
8. Know What You’re Paying For
“Garbage” or “junk” fees are charges of debatable merit that can appear on your closing statement. They generate plenty of complaints from buyers, but once close to making a deal, it’s hard to walk away – and lenders know it.
That’s how a “document preparation fee” or “warehousing fee” can slip into your final bill or a “credit check” can add a 50 percent mark up on the cost it takes to do a quick Internet check of your credit report. Look for lenders that charge legitimate fees – and be wary. (See “Do Your Homework,” above).
9. What to Check
Be sure that the name on the grant deed and deed of trust (mortgage) is correct (including middle initials). Also check the legal description of the property, the dates (including the close of escrow date), the loan amounts, any prorations and the payoff amounts for accuracy.
Even though it’s certainly not required, you may find it prudent – and a comfort – to hire your own attorney during escrow. Remember, you will be signing a number of legally binding documents to complete what may be one of the largest purchases you’ll be making in your life.
10. Be Practical
You may have heard stories about so-and-so’s cousin’s brother who talked a homeowner into paying all his closing costs. That can happen, in a buyer’s market – maybe.
Be careful about what you ask for because it could cost you the deal. In a hot market, it may be the buyer who can sweeten his offer by paying some closing costs traditionally covered by the seller.
And one more thing
Take a Final Look
If you’re the buyer, don’t close the transaction without a final walkthrough of the property. You want to be sure that it’s still in good shape.
Remember, the sellers were presenting their best face on the day you signed the purchase agreement. Be sure that you have homeowner’s/hazard insurance, which can protect you from loss or damage to your property from the moment you get the key.