Sealing The Deal: Making The Offer And Closing
So you’ve found a home and want it to be yours. Here’s what to do next.
If you’re ready to make an offer on a property, you’ve most likely done a lot of hard work to get to this point: You found a New Jersey real estate agent, whipped your credit into shape, chose a mortgage lender, determined your down payment, decided what type of loan you want, and (finally!) found your dream home. Now the challenge is writing a winning offer, fulfilling necessary contingencies, and getting to the closing table, where you’ll receive the keys to your new digs.
You’ll need to take a calculated approach if you want to ensure you’re getting the best deal. Follow these crucial steps to make an offer and get to the closing table:
1. Craft a compelling offer
Inventory is low in many metros. The number of starter homes on the market has dropped by 43.6% since 2012 — and first-time homebuyers today shell out 5.6% more of their income toward a home purchase than they did four years ago. This means you may have to go up against a number of other buyers when you make an offer.
You may even have to offer more than a home’s listing price to persuade a seller to accept; your real estate agent will help you come up with a compelling offer. Also, especially in a competitive market, it’s important to know just how high you’re willing to go in the event the seller asks you for your best and final offer, and then let your agent step in to handle the negotiating.
If you get into a bidding war — and can’t increase your purchase price — try pulling on the seller’s heartstrings by writing a personalized offer letter. Say what you love about the property (“Your home is around the corner from our son’s school.”) and explain why you love their home (“We love the beautiful hardwood floors you’ve taken such great care of.”).
2. Get your contingencies going ASAP
Once a seller has accepted your offer, you’re off to the races! Now it’s time to complete your contingencies, which are the conditions put in the contract that must be met for the contract to be binding.
Here are some of the most common contingencies you’re likely to encounter during this process:
• Financing contingency. This clause in the purchase agreement states that your offer on the property is contingent on being able to secure financing. The main goal of a financing contingency is to ensure that if you can’t obtain a loan, you’ll be able to get your earnest money deposit back. The clause specifies that you have a certain number of days within which to get your mortgage approved by your lender. Many lenders recommend homebuyers allow for up to 14 days. During this time, your loan will go through underwriting and — assuming everything checks out — you’ll receive a firm written commitment from your lender, which you then deliver to the seller to lift the financing contingency. This contingency is less common in hot markets; sellers are more likely to choose a buyer who has been pre-approved for a mortgage.
• Appraisal contingency. This clause states that in order for you to qualify for a loan, the property must be assessed by a third-party appraiser and found to be valued at (or above) the agreed-upon purchase price. Your lender will approve the loan only up to the appraised value. So if your agreed loan amount is $300,000, but the house appraises at $290,000, your lender is unlikely to agree to finance the sale. You and the seller will need to negotiate to determine whether one (or both) of you will cover the remaining $10,000 — or whatever the remaining cost is. If the appraisal is lower than your offer, you do have options. Sometimes everyone has to compromise to get to the closing table: the seller might have to come down on price; a buyer might pay more money in closing costs; or both real estate agents might need to take a lower commission. Alternatively, if you think the appraisal was inaccurate, you could get a second appraisal and then have your lender compare the two before deciding what loan amount you can receive. You also have the option to walk away from the purchase; this might be your best move if you feel uncomfortable paying more than what you initially offered for the property.
• Home inspection contingency. There’s more to a house than what first meets the eye. A home inspection contingency — strongly recommended by real estate agents even when you’re buying a brand-new home — states that you will get a licensed home inspector to check the property within a specified period after you sign the purchase agreement (typically seven days). Once the inspection is complete, you’re allowed to request that the seller make repairs; in many states, you’re required to give the seller a copy of the report. It’s up to you to decide what repairs you request. The seller then has the option to make the repairs or counter. If an agreement can’t be reached, the buyer can back out of the deal with their earnest money deposit intact. A home inspection contingency can give you peace of mind, since you learn exactly what condition the home is in before you decide whether to go through with the purchase. If your soon-to-be basement is covered in black mold, for instance, that may not be a home you want to purchase, with or without mold remediation.
• Lead-based paint inspection contingency. This contingency is typically used when purchasing a home built before 1978. Only certified inspectors can perform lead-based paint inspections. (Your general home inspector may already be certified.) You’re not required to do a lead-based paint inspection, but the U.S. Environmental Protection Agency recommends getting one if young children will live in the home.
• HOA documents. This isn’t a contingency per se, since you don’t include it in the purchase agreement, but it’s a legal right given to all homebuyers who purchase a home governed by a homeowners’ association. The seller must provide you with what’s referred to as the Declaration of Covenants, Conditions, and Restrictions, or CC&Rs: legal language for the association’s rules and regulations. These documents include the association’s bylaws, board minutes, record of reserve funds, master insurance policy, annual budget, a history of special assessments, and information on fineable infractions (e.g., some associations penalize residents for walking a dog without a leash).
Depending on the age of the community, you could receive hundreds of pages. As a homebuyer, you’re entitled to a period to review the documents once you receive them from the seller. (The number of days allotted varies by state.) If you decide to back out of the deal by citing that you have an issue with the HOA documents, you must notify the seller during the specified review period.
3. Assemble your closing team
Once the seller has accepted your offer, you’ll need to choose a title company to oversee certain parts of the transaction. The title company is responsible for verifying that the title to the property is legitimate, which ensures that you become the rightful owner of the home. A lot of the work that goes into doing the title search happens behind the scenes: checking that there are no outstanding liens, judgments, or unpaid taxes on the property, nor any easements, restrictions, or leases that affect ownership of the home. The title company acts as a liaison between both parties; it also typically oversees settlement.
4. Keep your finances in check
Until you reach the closing table, you need to make sure that your financial information remains the same, specifically your credit report and your bank accounts. Buying a car before you get to closing, for example, could damage your credit score — and since your loan still needs to go through underwriting, a lower score may negatively affect your mortgage (e.g., if your score drops from 760 to 690, you could wind up paying a higher interest rate or losing your mortgage entirely). A shopping spree for new furniture is also a bad idea — wait until you get the keys!
Moreover, the underwriter needs to be able to track where the down payment is coming from to approve the loan, so avoid making any large deposits or transfers to your bank accounts. If you need to move money, tell your lender what you’re doing and why.
5. What you need to bring to closing
It’s settlement day! But before you’re handed the keys to your new home, you need to go through closing. The morning of your settlement, you’ll go with your real estate agent to do a final walk-through of the house. Pay attention to any repair work the seller had done. (The seller should have shared receipts from contractors to show that licensed professionals completed the repairs.)
Assuming the home is in good shape, you’ll make your way to closing, where you’ll meet with a representative from the title company, your real estate agent, and your loan officer for settlement. (Caveat: Your lender isn’t required to be at closing, but you probably want your loan officer there in case of any last-minute issues with the loan.) The seller may or may not join you at the closing table; if they have already moved out of the area, for example, they will often sign their documents remotely.
By law, the title company must provide you with a copy of your closing documents three days in advance of settlement. Take time to review these so there are no surprises at the last minute.
The day of settlement, bring:
• Photo ID
• Homeowners insurance certificate
• A cashier’s check or proof of wire transfer for the exact amount of money you need to close
• Your co-signer (if applicable)
• Your checkbook in case there are any last-minute changes. (You still have one of those, right?)
6. Prepare for the future
Now that you’re a happy homeowner, you’ve got responsibilities: maintenance, repairs, utilities, and more (including that mortgage payment)! If you used a local lender, your mortgage will probably be sold to a larger financial institution. This won’t affect your monthly payment — it simply means you’ll be writing checks to a different company. (If you want to get technical: you’re now paying off your loan to a mortgage servicer rather than a mortgage lender.)
Traditionally, homeowners make mortgage payments on a monthly basis. However, many mortgage companies give you the option to use a biweekly payment plan. If you choose to do so, know that biweekly installments don’t necessarily save you money in interest. In most cases, the mortgage company applies the money to your loan only when it receives your full monthly payment amount, so even though you’re making payments every two weeks, you’re still effectively paying your mortgage only once per month.
Congratulations on your new home!
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