Article source: LawDistrict.com
A property deal only works if every party does the necessary due diligence, such as procuring the right documents. In this post, we’ll highlight seven essential steps for any successful closing and how the proper real estate contracts can help with this.
1. Get a Pre-Approved Mortgage
You shouldn’t even look for a house until you’re sure you can pay for it. In fact, sellers might not even consider your applications unless you have a pre-approval letter. This also gives you more leeway during price negotiations.
Pre-approval also gives you a clear budget to work with — you won’t waste time with properties you definitely can’t afford. Getting this ready in advance also prevents delays that would lead to you possibly losing a great home.
2. Get Adequate Insurance
You’ll need a robust homeowner’s policy before you go through with any sale. In fact, you’ll likely require it to get a mortgage. Compare at least three quotes and only choose ones that are sure to take effect on the closing date.
Your homeowner’s insurance policy should include dwelling, personal property, and loss-of-use coverage, as well as liability protection. Depending on any local hazards, you should also look into flood insurance (if in a FEMA flood zone) and earthquake insurance (if in a seismic zone)
3. Conduct a Title Search
You’ll need absolute certainty that the home you want belongs to the seller, or they can at least legally sell it. Search for the home’s title to avoid any nasty ownership surprises later on.
To give yourself extra backing, use a warranty deed, not a quitclaim one. This will verify that the seller holds the title — it also protects you from someone else potentially claiming the property.
4. Review the Purchase Agreement
Some sellers want to close quickly and will present you with a purchase agreement right away. If this happens, don’t rush the sale — take the time to compare this with an online template. You’ll also have to look out for any red flags, such as:
- Unclear contingencies that don’t let you back out of the sale easily
- A vague property description that doesn’t cover every included item
- The agreement doesn’t include all of the property’s current owners
- The closing date is unrealistic or doesn’t allow for any inspections
- “As-is” clauses that don’t expand on the property’s defects or issues
- The seller is pre-emptively deciding every part of the closing process
- No exit clauses in case of serious issues (such as a bad inspection)
Consider bringing your own agreement to the table, possibly with the help of an online template. This ensures the whole document is legally binding and will save both parties time and money.
5. Set Up an Escrow Account
You need an escrow account to transfer the funds for the property safely. This holds the money in stasis until the actual transfer is complete, protecting both parties in the process.
A neutral third party manages this account, and they’ll decide when to release your money. This is usually subject to any contingencies you and the seller agree upon, so it’ll only happen when everyone’s happy.
In addition, your escrow agent will handle the deeds and other paperwork. You won’t have these until the money goes through, protecting the seller from a potential scam.
6. Establish Contingencies
You won’t want to be liable for a property if your financing falls through. This means you have to set up contingencies that determine if your property deal can go ahead.
Common real estate contingencies include:
- Inspection contingencies, which let you back out if there are any major problems
- Appraisal contingencies, which determine if the property’s price reflects its value
- Financing contingencies, which let you back out if your mortgage doesn’t work out
- Home sale contingencies, which help you stop the sale if you can’t sell your home
- Title contingencies, which void the transaction if the seller can’t provide a clean title
Any of these could protect you from an unscrupulous seller. Always be suspicious if an owner is against these basic real estate failsafes.
7. Conduct a Final Walkthrough
A few days before closing, check the property yourself. If you arranged an inspection, verify that the owner has fixed any issues. Flag any persistent problems — depending on their importance, you might even want to delay closing until they’re fixed to your satisfaction.
The walkthrough must cover every room, especially those you haven’t already seen for yourself. This is also a good opportunity to check the purchase agreement one last time. There’s always a chance the seller will try to make last-minute changes that only help them.
Final Thoughts
Never rush closing on a property, no matter how much you love it or trust the seller. By following the above steps, you can make sure you don’t get cheated and end up with a home you’ll love.
