A Guide To Closing
Buying a home or investment property can be an emotional and confusing process, as can navigating the complexities of the buyer/seller relationship. Understanding the crucial steps involved in closing on a home is key to a successful transaction.
From mutual acceptance of the offer to the moment you finally have keys in-hand, each detail matters in sealing the deal. Timelines, responsibilities, and clear communication are essential for a smooth closing.
In this article, we’ll discuss a few of our best tips for closing on your new home or real estate deal as a prospective buyer.
#1 Make back-up offers
Many prospective buyers lose hope on their dream home or perfect investment property because the seller has already accepted a primary offer or has several competing offers. However, if you really love the property, you could still close on it yet, even in a competitive real estate market.
A back-up offer is an offer that allows you to make a purchase offer on a home if the first, existing offer falls through. Submitting a backup offer to a home with multiple offers increases your chances of getting your top choice home, especially as many first offers fall through due to issues with financing. Backup offers also demonstrate to the seller your seriousness about the property and your offer price, which may give you a competitive advantage.
#2 Include an escalation clause in your offer.
Another tip for closing on your top choice property is to include an escalation clause in your offer. An escalation clause is a clause that states that you’re willing to raise your offer on a home if the seller receives a competing offer that is higher than yours. Escalation clauses show that you are willing to go above and beyond the competition to close on the home you want. Combined with an earnest money deposit, escalation clauses demonstrate seriousness and can help you win out during a bidding war, especially in a competitive seller’s market.
You’ll want to set a price cap or maximum price on your escalation clause so that your offer doesn’t increase beyond what you’re willing and capable of paying for the purchase price. This maximum purchase price can be discussed with your real estate agent to ensure it’s reasonable. Your agent can also help you find an escalation clause example or explain how these clauses work in more detail.
#3 Settle all contingency requirements before closing day.
Once the seller has chosen your offer, the next stage is mutual acceptance. Mutual acceptance (real estate) is the point in the sales process where the buyer and seller agree to the price, terms, and conditions of the home purchase.
At this point, a binding real estate contract is created and signed, which usually includes several contingency requirements. These are specific conditions that must be met for the deal to go through, such as:
These contingencies help protect you should something not go to plan during the sales finalization process, such as a major needed repair revealed during the home inspection, a low appraisal, or inability to sell your previous home or secure funding for your new one. Work closely with your agent or a real estate attorney if necessary to draft these contingencies.
Remember, once mutual acceptance occurs, the contract becomes binding, and all parties must adhere to the agreed-upon terms. Within several days of mutual acceptance, the buyer must also transfer any earnest money to the escrow account.
After mutual acceptance, it’s you and your agent’s job to ensure the sales conditions are met. This means getting a professional inspection and appraisal and working with your lender to ensure everything is in order with your loan.
#4 Keep in close communication with your lender, closing agent, and real estate agent.
Keep these people informed and read/answer any communications from them as soon as possible. There will be a lot of paperwork to review and sign during the closing process, some of which may require in-person signatures with a notary. Be sure to ask any questions that come up, respond to scheduling requests promptly, and generally keep the flow of communication running smoothly so that you don’t miss any details. Flexibility is important at this stage since an inattentive buyer is unlikely to lead to a smooth closing.
#5 Manage stress by solidifying your repayment plan.
Buying a home, especially for first-time homeowners, can be stressful and anxiety-inducing. You may feel fine making an offer, but it’s easy to feel overwhelmed when it’s actually time to make the large investment and watch your savings disappear into the down payment and closing costs. Depending on the length of your mortgage, you’re also committing yourself to a substantial amount of debt, potentially for decades.
Despite how scary this sounds, it is helpful to remember that the debt you’re taking on is the good kind, helping you to build equity in an appreciating asset that you can own forever or sell later. One tip for managing stress is to have a solid plan for repayment to ease your anxieties about making this investment. By breaking up your large loan amount into smaller, manageable steps, you’re less likely to feel overwhelmed.
It may be helpful to discuss this plan with your spouse, partner, co-homeowner, financial advisor (if you have one), or another knowledgeable and trustworthy person in your life. Understand how much money you should set aside each month for your mortgage, and be aware of strategies to reduce your debt obligation—including mortgage points, refinancing options, or making even one extra payment towards the principal each year.
#6 Arrive early to your closing appointment with all identification, paperwork, and payment method.
When the day of your closing appointment finally arrives, be prepared with all the documentation required.
You will generally need:
- Government-issued photo ID (driver’s license, passport, etc.)
- Payment method
- Proof of homeowner’s insurance
- Home inspection/appraisal reports
- Mortgage approval documentation from your lender
However, be sure to ask your real estate or closing agent for specifics about the appointment, including required documents you must bring, how early you should be to the appointment, and approximately how long it will take (usually at least an hour).
Additionally, be sure to find out which method of payment is preferred for your closing costs and down payment, whether that be a wire funds transfer, certified check, or another method. Be aware that you may need to make an appointment with your bank to wire funds, which must be done ahead of the closing appointment date.
#7 Review the Closing Disclosure (CD) before the appointment.
The Closing Disclosure (CD) includes extensive details about your loan and payment schedule. Your lender is usually required to send this to you within a few business days before you close on the home. It is pertinent that you review the CD to ensure that important details like your legal name, address, the interest rate, and seller concessions are correct and that all other components are in order.
If you have questions about anything in the CD, ask your lender or agent immediately. Reviewing this document fully can take a while, so set aside ample time to review it at least a day or two before your closing date.
#8 Be prepared for the closing costs.
Closing costs are a substantial group of fees that total to around 2-6% of the loan amount on average. They typically include:
- Application fees
- Loan-origination charges
- Attorney fees
- Title insurance fees
- Appraisal fees
- Credit reporting fees
- Discount points
- Escrow account fees
- Government recording fees
- Private mortgage insurance
- Miscellaneous other fees
Don’t underestimate closing costs, especially for higher-value homes. Know which closing costs apply to your purchase and how much they’ll be, and have a plan for paying them.
#9 Know when to expect the keys.
Although you’ll likely be eager to head over to your new property after signing on the dotted line, know that you may not be able to do so immediately. There may be a short waiting period before you can take possession of the keys if the sale needs to be recorded officially with the county first. Find out whether this applies to your purchase so that you’ll know whether to expect the keys immediately after closing or if you’ll need to wait a few days.
#10 Celebrate the occasion.
Buying a home or investment property is a momentous occasion. It’s appropriate to celebrate after the closing appointment with photos. Many buyers also bring a small RESPA-approved gift for their agents to demonstrate appreciation for their agent’s hard work and dedication throughout the closing process.
Most importantly, celebrate that you’ve just made an important investment in your future.
