You have so many things to take care of when buying or selling real estate; You do not need one more thing to worry about. So here is a basic overview of the residential real estate closing process.
1. Mortgage Pre-Approval Letter- Secure a mortgage Pre-Approval Letter if you will need financing. Mortgage brokers are often able to identify the different loan options you may be eligible for. The Pre-Approval Letter will identify the type of loan you qualify for, your down payment requirement, the maximum price you qualify for, and approved usage, i.e. owner occupied. The Pre-Approval Letter does not commit to an interest rate, and the Letter often expires after 60 days. Be sure not to change anything once you have this, i.e. make a big purchase or change jobs. It could affect your credit score and financing eligibility.
2. Real Estate Agent - In today’s technology-based world, buyers can often find a property they want to see online, but it is best to sign a Listing Agreement with a well-respected realtor. Your realtor can spend the time identifying properties and scheduling appointments for you.
3. Offer - Once you have identified the property you want to purchase, you will sign an offer in the form of a Real Estate Purchase Contract, along with any required Riders, i.e. As Is, or Condominium, etc. Be sure to address any contingencies, i.e. funding timeline, type of funding, inspections required, closing dates, etc. You will also send along your mortgage Pre-Approval Letter and/or Proof of Funds.
4. Attorney – In Connecticut, you are required to use an attorney to close a real estate transaction. This may be optional in other states, where the lender or even the realtor is authorized to handle the closing. Be sure to understand the attorney’s fees and sign their Engagement Letter.
5. Inspections – Your real estate agent can give you the names of Home Inspectors you can contact for the specific inspections you are requiring, if any. Be sure to have these conducted within the time limit provided in the Contract. Once the inspection report comes in, review it quickly and address any issues identified with the seller. You do not want to be so detailed that you kill the deal, but you certainly want to address the more serious and/or expensive issues raised. The seller will respond with either a credit offer, willingness to address the issues identified or terminate the contract.
6. Title Search – Once you are satisfied with the inspection outcome, you need to approve a title search. Your approval is necessary because the title company will charge you the search fee even if the sale does not close. In addition to the search of the land records, it is recommended that a municipal search also be conducted to be sure there are no open permits or other outstanding zoning violations that you may be liable for post-closing.
7. Legal - The title commitment will identify any legal issues that have to be addressed to clear title. Your attorney will work to resolve these on your behalf. Additionally, you may need an Escrow Agreement if funds are to be held back, or a Use and Occupancy Agreement if the seller wishes to stay after the closing date. There may be additional costs to do these.
8. Mortgage Commitment – Once you have provided your lender with everything they require, and the appraisal comes back satisfactory, they will issue a Clear To Close. As part of this process, the attorneys will work with the lender, usually through the attorneys’ paralegals, to reconcile your closing costs, i.e. property taxes, deposits, oil/propane reserves, solar assignments, final utilities, conveyance taxes, lender’s closing costs, etc. The lender is required under federal law to provide that to the buyer at least three days before the closing is finalized. You should raise any questions you identify immediately.
9. Closing – You will want to close by the date identified in the contract and within the time limit or rate lock provided by your lender. You do not need to bring anything to you closing other than your identification. The closing packet is prepared by your attorney as settlement agent. Your attorney will go through the documents with you, witness and notarize everything as required. They will then ensure that your deed is recorded, mortgages are paid in full, and all payments identified in the Closing Disclosure are paid. Gone are the days when both the seller and buyer come to a conference table with the attorneys and the realtor. Post COVID, papers are signed separately, reviewed in advance and exchanged between the attorneys on the day of the closing.