Closing on your first piece of real estate is hard work. There are no shortcuts to getting through the closing process unless you decide to buy a home in cash.
But the real estate closing process can be simplified with a little advance preparation. Here are 5 things you need to know before making an offer on your first home.
1. Finalize Your Approval
Most of the process leading up to closing day is finalizing your loan approval. Preapproval, despite the name, doesn’t mean you’re actually approved for the mortgage loan.
It simply means you’re likely to be approved based on the preliminary documents you submitted. You’ll need to send the underwriting team updated financial statements, bank balances, and proof of debt repayment consistently throughout the closing process.
This helps reassure them your financial situation hasn’t changed and that everything is as it seems.
2. Negotiate Closing Costs
Real estate is a sales transaction. As with many sales transactions, the amount you pay is whatever the buyer and seller think is reasonable based on the situation.
This could mean high closing costs, few closing costs or no closing costs at all. Negotiate with the seller to see if you can, at a minimum, opt out of paying any junk fees.
Junk fees are the last minute costs added on by the lender to process the loan. They are usually difficult to predict as they are things like ‘application review fees’ and ‘processing fees.’
These fees quickly add up and can be a financial curveball since they aren’t standard to every real estate closing process.
3. Should You Renegotiate Your Offer?
During the real estate closing process, you’ll get a home inspection and sometimes a pest inspection. In newer homes, homeowners might skip the pest control inspection because builders have their own pest control services with new construction.
But if you get inspections for both and notice issues with the home and pests, you may want to consider renegotiating your original offer to account for anything you’ll have to repair or get rid of.
Don’t be shy about changing your offer. The earnest money deposit you paid is refundable if the house isn’t as represented.
That means you made an offer based on the assumption there were no major issues that would be unaffordable to fix.
4. Lock in Your Interest Rate
The real estate closing process can drag on for months in some cases. Don’t miss out on low interest rates waiting on your approval.
If possible, request to lock in your interest rate with your mortgage broker right away.
5. Time and Location of Closing
The final thing you’ll need is the time and location of closing. This is where you’ll sign all your final contracts and settle on the details of the mortgage loan.
You don’t want to be late or miss the appointment you’ve been waiting for months to get. If you’re too late, the attorneys might need to reschedule if their office has back to back closings.
Preparing for Your Real Estate Closing Process
The real estate closing process isn’t a passive activity. You’ll have to remain on top of your communication with the underwriting team while working with vendors to make sure the property is up to par.
Beyond your realtor, no one else involved in the transaction is obligated to look out for your financial best interest. Do your due diligence through each step of the process to avoid overpaying.
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