After months of searching you have finally found your dream home. You scoured listings, out-bid other potential buyers, and the seller finally accepted your offer. Now what? Can you grab the keys and move in? Not so fast — you still must complete the closing process. Read on for what to expect in closing on a home, pitfalls to avoid, and strategies for successfully completing this final hurdle before home ownership.
Starting the Closing Process
Closing is the last step in the long journey towards home ownership. When people talk about your “closing date,” that means the date that ownership of the home transfers from the seller to you.
Negotiating the Contract
Contract negotiations mark the beginning of the closing process. During this phase, the buyer and seller set a closing date. You’ll also be required to pay “earnest money.” Like the name implies, this is a deposit the buyer makes to the seller to signify the buyer’s good faith interest in buying the home. This earnest money also secures the contract— if the seller backs out, you get the money back, and if you back out, the money goes to the seller.
Opening an Escrow Account
Next, you’ll want to open an escrow account. Since the closing process takes a while, the escrow agent serves as a neutral third party that holds the legal documents and money relating to the transaction until title transfers from the seller to the buyer. This way no one feels cheated and important documents are kept safe and secure.
Performing a Title Search and Purchasing Title Insurance
It is crucial to perform a title search, which is the process of examining public records to determine the history of a piece of property. You perform a title search to ensure that the seller actually owns the property and that there are no outstanding claims on the property. The last thing you want is to close on a home and discover years later that the seller’s second cousin twice removed actually owns part of the property you purchased.
You will also want title insurance, and in some instances it is required. Title insurance protects you from financial loss in the event title defects exist without your knowledge. Say that a person or entity has a lien or an encumbrance on the property, and you didn’t find that out till you became the homeowner. Title insurance will protect you from the financial hit such defects would otherwise cause.
Getting a Home and Pest Inspection
Home inspections and pest inspections are a crucial part of buying a home. In fact, they are required in North Carolina. No one wants to find out after completing the closing that their seemingly perfect home is actually a money pit in need of extreme repair or that the home is infested with wood-destroying termites. Inspections help you avoid any surprises before you purchase the home.
A home inspector will assess the home for health hazards, safety issues, analysis of structural elements, and evaluation of heating and cooling systems, plumbing, and electricity. If you encounter a major issue, it is not too late to back out of the deal, or you can request that the seller fix it. The same goes for a pest inspection. If the inspection uncovers problems requiring repair, the seller may pay directly for the repairs, or the buyer and seller may negotiate the purchase price to reflect the repair costs.
Locking in Your Interest Rate
Many people prefer to get mortgage pre-approval before making an offer to speed up the process, lock in an interest rate, and allow the buyer to know their purchase limit. But if you did not get mortgage pre-approval, you’ll want to make sure you’ve locked in your interest rate at this stage in the game. Mortgage interest rates are subject to change. So you need to protect yourself by making sure you aren’t subject to volatile market fluctuations.
Completing Funding Requirements
You’ll have to make sure you have paid additional funds into escrow to complete your purchase. In addition to the earnest money you paid during contract negotiations, you’ll also make any other required payments, like a down payment. Failure to make these payments could result in closing cancellation and the deal falling through. So it is crucial that you and your lawyer double check that you’ve fulfilled all funding requirements.
Before completing the closing process, you definitely should do a final walkthrough of your future home. This walkthrough is not just a formality; you’ll want to double check that the seller has completed any repairs you agreed to and left the premises in good condition in accordance with the contract. If the seller agreed to substantial structural repairs, hire a professional to inspect the home to make sure these repairs have been completed.
Going to the Closing and Signing the Paperwork
At this point you’re almost through! All you’ve got to do is sign that paperwork and get your keys. But keep in mind that the paperwork isn’t just a formality — you should actually read the stack of papers in front of you and make sure the fine print doesn’t contain any surprises. Your attorney should come with you and help you understand the information contained in the paperwork. Take your time and don’t let people make you feel rushed. Once you sign, the agreement is binding and will impact your life for yours to come. After that, you’ll receive the keys and prepare to move into your new home!
How Long Does the Closing Process Typically Take?
Real estate deals can take weeks or even months. This is because the process involves numerous moving parts that need to be aligned before the house becomes your home.
Because closing involves many complex steps, it is smart to hire an attorney to help you navigate this process. Not only the closing process, but also the plethora of paperwork, are tricky to understand. An attorney will, among other things, make sure all the paperwork is properly drawn and filed with the correct authorities and perform the title search for you. Importantly, while a real estate agent may represent only the seller’s interest, your attorney’s job is to safeguard your interest alone.
Have questions? Contact Allison Plekan of Plekan Law PLLC at (919) 653-1976.