A Word on Contingencies
As the real estate market heats up and competition gets fierce in cities like San Francisco, Seattle, New York and others, we wanted to share advice on contingencies.
One of the most common contingencies are “financing contingencies.” This contingency states that the seller understands the contract is canceled if a prospective buyer earnestly attempts to get a mortgage to buy the property, but is turned down. We are seeing an increase in buyers waiving financing contingencies in order to show the seller their serious intent to buy the home.
Another common contingency (and one I went through personally) is the inspection contingency. If an inspector finds defects in the home you are looking to purchase, and you (the buyer) no longer wish to proceed or negotiate an agreement on how to repair the defects, the two parties can cancel the contract.
Proof of Title Search and Insurance for Closing
Before you close on your new home, make sure the title company you are working with has performed a title search. The title company should make sure there are not any outstanding liens or other marks against the property.
What is a ‘lien' you ask?
A lien is a legal claim against the property that must be satisfied before the property is sold. The lien provides notice that the bank has a secured interest in the property and guarantees the bank that the property cannot be sold or transferred without either the loan being repaid or assumed.
There could also be unpaid property taxes, or other loans that need to be repaid for you to successfully close on the home, so many sure everything is in good order with the home's title, before signing any documents.
Flood Certification
States the flood zone status of the property (so you’ll know if you need flood insurance). Most lenders will take care of the flood certification.
Proof of Homeowners Insurance and Mortgage Insurance
You need to be insured before you can go through the closing process and prove that you’ve bought the policy. Most lenders require proof of 12-months homeowner's insurance, and some will want this pre-paid and deposited in an escrow account before you go to closing.
Home Appraisal
A document appraising the home’s value. Appraisals are handled by third-party vendors and hired by your mortgage lender to ensure the property you seek to purchase has a value that matches the loan amount you are attempting to borrow from the bank.
Closing Disclosure
The Closing Disclosure is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage closing costs.
The lender is required to give you the Closing Disclosure at least three business days before you close on the mortgage loan.
During this time, compare your final terms and costs to those estimated in the Loan Estimate we mentioned earlier. Also, during those three days also gives you time to ask your lender or broker any questions before you go to the closing table.
In Summary
Overwhelmed? Don’t be.
Yes, we just went over a lot of stuff. However, you don’t need to feel overwhelmed! You’ll have a lot of guidance at this point in the process from your realtor and mortgage agent. Everyone involved wants closing to go smoothly, so it’ll be clear what you need to present at the closing time.
Closing involves sitting at a table (often with the sellers and their real estate agent present) and going through document after document. You’ll be walked through each document, told what it means, and told where to sign.
These days, it’s more common to go through some of the closing process (or all of it) electronically, so if that is something that appeals to you, call us at 833-600-0490 or email us at [email protected] and we'll help you get there!