THE CLOSING PROCESS - WHAT TO EXPECT
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If you’re reading this, you’re probably entering the home stretch. Hang in there! The closing process, or settlement, transfers ownership of your new home from the seller to the buyer. Yes, there’s a lot going on, and a lot of money is going to change hands. But when you know what to expect and plan well, it can be a smooth, relatively low-stress experience.
The whole process boils down to __ steps. Closing on a home is an important moment, yet it might actually be easier than finding the home you want and can afford in the first place. And when it’s over, you leave with the keys! And a mortgage. Let’s take a look at what takes place.
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STEP 1 – Buyer and seller agree on the price and terms. Contract is usually prepared by the buyer's agent on a special contract form known in the industry as a TREC 20-16, "ONE TO FOUR FAMILY RESIDENTIAL CONTRACT (RESALE)" - this is required for all residential sales (except condominiums), unless drawn up by a licensed attorney. Seller provides a "Seller's Disclosure" which identifies any known issues with the property under penalty of perjury, but are only liable for things they knew about.
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STEP 2 – The seller's Title Company receives the executed contract, earnest money and any money for the termination option. The Termination Option Fee is typically around $250 and gives the buyer the right to terminate the contract for any reason within a specified period, usually 3 to 5 days. The Option Fee goes to the seller and the earnest money is held in escrow by the title company. If the buyer terminates the contract for reasons specified in the contract the earnest money is returned; however, if the buyer terminates the contract, after the option period, without contractual grounds the earnest money goes to the seller.
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STEP 3 – A title search is conducted. Often an experienced seller's agent will ask the title company to do a title search as soon as listing the house to see if there are any issues associated with the title or property. Such things as liens against the property that could prevent the title from transfering. The file is assigned a a tax certificate.
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STEP 4 – The legal history of the property is checked. The title search includes a list of owners of record, liens, encumbrances, lawsuits, divorces and any other factors that could put a cloud on the title or effect the transfer of title.
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STEP 5 – Once all of the title documents are compiled, the examiner reviews them and issues a title report.
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STEP 6 – After the title examiner's report is created, a Commitment for Title Insurance, sometimes referred to as a Title Commitment, is issued. There are four sections, schedules to the Title Commitment with B and C the most important. B sets out the proposed exceptions from coverage such as certain easements, encroachments with proper documentation. Schedule C provides the items that must be cleared in order for the underwriter to issue a title policy. The Buyer and Seller receive a copy of The Commitment along with the lender. This packet the usually contains the Tax Certificate along with the wiring instructions. The cost associated with obtaining the Title Commitment can be either the seller or buyer subject to the negotiation prior to signing the contract. The Title Company has 20 days to deliver a Commitment for Title Insurance.
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STEP 7 – The seller’s loan payoff information is requested. The seller produces the existing survey or a new survey is ordered which may be paid by either the buyer or seller depending on the contract terms that are negotiated. The buyer is typically given 2 to 3 days to review the title and accept or reject the survey. and HOA documents are ordered, if necessary.
STEP 8 – A closing time is scheduled with all of the properties.
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STEP 9 – All lender-requested closing documents are delivered to the title company and they prepare everything to facilitate a smooth closing day.
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STEP 10 – On closing day, the Buyers and Sellers sign the closing documents. Once the lender reviews all of the signed documents and approves them, funds are disbursed through the Title Company.
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