Buying A Home: Steps Involved in Closing the Deal

Buying a Home – Steps Involved in Closing the Deal curleyrothman.com

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“While it is always advisable to work with an experienced real estate attorney when purchasing real estate to ensure that

your rights are protected throughout the process, it may also be beneficial to familiarize yourself with the most

common steps, terms, and documents involved in the closing of a real estate purchase.”

Charles Curley Pennsylvania Employment Attorney

http://www.curleyrothman.com/


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For many people, buying a home

remains part of the “American Dream.”

For a first time home buyer, however,

the process of buying a home can be a

bit intimidating, particularly the closing.

Unless you are fortunate enough to be

able to purchase a home with cash you

will have to qualify for a mortgage loan

in order to finance your home

purchase. The legalities involved in the

closing process, particularly when

financing is required, can be confusing

to even a veteran buyer. While it is

always advisable to work with an

experienced real estate attorney when

purchasing real estate to ensure that

your rights are protected throughout the process, it may also be beneficial to

familiarize yourself with the most common steps, terms, and documents involved

in the closing of a real estate purchase.

Pre-Approval vs. Pre-Qualified – A Word about Financing before You Get

Started

Because this is an area that tends to confuse buyers frequently, it warrants a

brief discussion before moving on to the closing. It makes sense to know if you

can get approved for a mortgage loan before looking at houses and, if so, for


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what amount. Toward that end, both “pre-approval” and “pre-qualification” are

offered to prospective buyers by lenders. Knowing the difference is important.

Pre-qualification is based on information you supply to a lender and does not

include an in-depth review of your credit report or supporting documentation.

Pre—qualification can even be done over the phone or internet. Therefore, pre-

qualified simply means a lender has told you what you would likely qualify for

based on information supplied by you.

Pre-approval is a lengthier process that involves filling out an actual loan

application and supplying requested documentation to a lender along with a

review of your credit report. Once pre-approved, the lender will usually provide

you with a conditional commitment for a specific loan amount in writing. You

should also know what interest rate you qualify for once you are pre-approved.


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Earnest Money

The first step in closing on your home after you have negotiated an offer to

purchase is to give the seller

earnest money. Think of

earnest money as a “deposit”

that shows the seller you are

serious about purchasing the

home. Earnest money also

acts to “hold” the home while

the details of the offer,

including financing, are ironed

out. The amount of earnest

money is usually between one percent and three percent of the purchase price.

Appraisal

Having the property appraised is usually next on the list. As the buyer you clearly

want to know that the home is worth what you offered to pay for it; however,

more importantly the lender needs to know that the home is worth what they

have been offered to lend for it. The lender will choose the appraiser but you, as

the borrower, will pick up the tab. There are varying rules for what the home must

appraise for and how much of the appraised value a lender will lend. For

example, a lender might only be willing to lend 95 percent of the appraised value,

meaning you must either pay the difference or negotiate a purchase price lower

than the appraised value.


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Selecting a Closing Agent

The actual closing

typically takes

place at either an

attorney’s office or

a title insurance

company. The

closing agent

makes sure all

documents are

properly executed

and handles the

practical aspects of the transaction. Because there are a number things that can

go wrong at the last minute it makes sense to have a real estate attorney handle

the closing. An attorney, for example, is best suited to handle liens,

encumbrances, or other potential obstacles to the transfer of the property that

show up at the last minute.

Inspections and Disclosures

After the offer to purchase has been accepted but prior to the day of closing an

inspection of the property should take place. Typically, a certified/licensed

inspector will go over the property looking for potential problems with major

systems such as plumbing, HVAC, and electrical as well as with things such as

the roof, walls, foundation, and structural issues. In addition, the seller is required

to prepare and submit a disclosure form noting any known defects in the


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property. Often, the sale itself is contingent upon the results of the inspection,

meaning the buyer can back out of the deal if the inspection uncovers any major

problems with the property.

Homeowner’s Insurance

As the buyer you will be required by the lender to obtain homeowner’s insurance

prior to the closing. Along with general homeowner’s insurance you may be

required to purchase specific types of insurance, such as flood insurance, based

on where the home is located or other specific local requirements.


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Title Search

A title search must be done to ensure that there are no liens, encumbrances,

unpaid taxes, or other issues with the title to the property. In short, the seller

cannot transfer title to the property if the seller does not have a clear title to begin

with, aside from the seller’s mortgage loan which will be paid off at closing. The

title search is usually done by the closing agent.


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Final Loan Approval

The lender will need to officially approve the mortgage loan once the appraisal

and inspection are done and the homeowner’s insurance is secured. Once the

loan is officially approved the loan documents will be transferred to the closing

agent for execution at the closing. The closing itself may go by rather quickly,

with one document after another being trust in front of you to sign.

Given the fact that a home purchase is usually the single biggest purchase you

will make in your lifetime it is wise to take the time to review these documents

with your attorney prior to the closing so you really know what you are signing at

the closing.


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Closing Costs

As the buyer you will not only be responsible for the purchase price of the home

but also for a number of “closing costs” associated with obtaining the mortgage

loan and the closing itself. Some of these costs are subject to negotiation

between the parties as part of the original purchase negotiations. Costs related to

the mortgage loan must be itemized by the lender on the HUD-1 Settlement

Statement which must be provided to the buyer prior to closing.

You will also receive a “Truth in Lending Act”, or TILA, form shortly after you

apply for a mortgage loan as well as a revised copy just prior to closing. The


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TILA form indicates what the real cost of your mortgage loan is over the life of the

loan. Some common closing costs include, but are not limited to:

Loan origination fee

Down payment

“Points” or loan discount fees

Real estate commission fees

Appraisal costs

Inspection costs

Credit report costs

Notary fees

Title insurance fees

Taxes

Closing fees paid to closing agent

Homeowner’s insurance premium

Recording fees


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The Closing

The actual closing will take place at the closing agent’s office and will often take

no more than about 30 minutes. Typically, the people present at the closing will

include:

Buyer

Seller

Closing agent

Attorneys for buyer/seller

Representative from the title company

Representative from the lender

Real estate agents for buyer/seller

As the buyer you will be asked to sign a variety of document, including the

mortgage note and the

deed of trust. The

mortgage note is your

promise to repay the

loan. The deed of trust

secures the note and

gives the lender a

secured interest in the

property in the event

you default on the loan.


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Along with executing documents, the funds for the purchase will be transferred at

the closing. If the seller has an existing mortgage the mortgage, along with any

other existing encumbrances, must be paid off at the closing. Finally, you will

receive the keys to your new home!

If you have specific questions relating to the closing on your new home it is best

to consult with an experienced Pennsylvania real estate attorney prior to the

scheduled closing.

Investopedia, Attention Home Buyers! Why You Need a Lawyer

Investopedia, Pre-Approved vs. Pre-Qualified, What’s the Difference?

Home Loan Learning Center, Closing

Investopedia, 12 Steps to Closing a Real Estate Deal

Bankrate, Buying a Home? What to Expect When You Are Closing?

http://www.homeclosing101.org/closing.cfm

http://www.investopedia.com/articles/mortgages-real-estate/08/real-estate-attorney.asp

http://www.investopedia.com/articles/basics/07/prequalified-approved.asp

http://homeloanlearningcenter.com/howdoyou/step6closing.htm

http://www.investopedia.com/articles/mortgages-real-estate/10/closing-home-process.asp

http://www.bankrate.com/finance/mortgages/understanding-the-closing-process-1.aspx

http://www.homeclosing101.org/closing.cfm


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About Curley & Rothman, LLC

Curley & Rothman, LLC is a boutique firm of

commercial lawyers serving clients ranging from

individuals to Fortune 500 corporations in

Pennsylvania and New Jersey. We provide

clients with experienced, skilled, and honest

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www.curleyrothman.com

Phone: 610-834-8819

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