People who are planning to buy a home often find the process confusing. Much more is involved when purchasing a home than when completing other types of transactions. For example, the process of buying a new car typically only takes less than a day, but buying a home takes an average of 30 to 45 days in New Jersey. The length of real estate transactions is because of their complexity and the amount of money involved. A home purchase is the largest purchase most people will ever complete, and there are multiple steps in the process.
If you are thinking about buying a home within the next year, you might wonder about what is involved in closing. While most people think a real estate closing is only the final event when people receive the keys and deed to their new property, the closing process actually begins much earlier. Here are the steps of the real estate closing process in New Jersey from a New Jersey real estate attorney at the Ziegler Law Group, LLC.
Steps in the Closing Process
While the real estate closing is the final event that occurs in a real estate transaction, the process begins when the seller and buyer sign a real estate contract. The following steps are involved in closing on a home in New Jersey.
1. Offer and Acceptance
The closing process will begin once a seller accepts an offer made by a buyer to purchase a home for an agreed-upon price. This might involve some negotiation upfront. For example, the buyer might make an offer for a home that is slightly lower than the listing price. In some cases, a buyer might make an offer that is more than the listing price in a competitive market. When the seller agrees and signs the purchase offer, a real estate contract will be prepared for both parties to review and sign. Buyers typically place an earnest money deposit in escrow to show they are serious about the offer.
2. Attorney Review
Once a real estate contract is presented to the buyer, they will have 72 hours (three days) to review it. This period is called the attorney review and is a critically important step. When you are preparing to enter into a significant contract, it's never a good idea to sign without reviewing the document carefully. A real estate lawyer in NJ at the Ziegler Law Group, LLC can review your real estate contract and negotiate with the seller for the inclusion of buyer-friendly contingencies.
For example, it's a good idea to include an inspection contingency, which allows the buyer to walk away from the deal without penalty if significant problems are discovered that the seller is unwilling to repair. Some other common contingencies that might be included in a real estate contract that can be negotiated include the following:
- Clear title contingency: Allows the buyer to back out without penalty if the seller can't present a clear title or resolve title defects
- Financing contingency: Allows the buyer to withdraw if they can't be approved for a mortgage
- Appraisal contingency: Common contingency required by many lenders stating they won't approve financing if the home's appraised value is less than the agreed-upon sales price
- Home sale contingency: A contingency that the deal is contingent on the buyer being able to sell their own home before closing on the new property
Your lawyer can discuss your situation and negotiate contingencies to protect your rights and interests. Once you and the seller reach an agreement, the final contract will be drafted. Once both of you sign the document, the closing process begins.
3. Applying for a Mortgage
Most people finance home purchases by getting mortgages. Typically, prospective buyers will get mortgage pre-approvals before actively searching for a home to make them more attractive to potential sellers. A mortgage pre-approval is not the same process involved with getting a mortgage. Instead, a pre-approval indicates the buyer meets a lender's minimum requirements and will likely be approved if everything can be validated.
The mortgage approval process occurs after a buyer and seller have signed a contract. The buyer will then submit a mortgage application together with numerous financial disclosures. The following are some of the documents you might need to submit with your mortgage application:
- Income tax returns
- Pay stubs
- W-2s
- Bank account statements
- Investment account statements
- 1099s or profit/loss statements for business owners
- Audited financial statements for business owners
- Government-issued photo identification
- Documentation of other income sources (alimony, child support, rental income, etc.)
- Documentation of debts and liabilities
Once you have submitted all of the required documents, the mortgage company or bank will begin the underwriting process and evaluate the deal before making a final decision.
4. Appraisal and Inspection
The lender will schedule an appraisal of the home. This is meant to ensure the home's value at least equals the sales prices you've agreed to pay. If the appraisal shows the home's value is less than what you agreed to pay, the lender might deny your mortgage unless you make up the difference.
The lender's appraisal should not replace a general home inspection. As the buyer, you have the right to have the home inspected within 14 days of when the contract is signed. This is important because a home might contain major issues that aren't readily seen during a showing. If the inspection finds structural issues, termites, electrical problems, plumbing issues, or other major problems, you can negotiate with the seller for repairs or a reduced sales price. If you have an inspection contingency, you can walk away from the deal if the seller is unwilling to make repairs or reduce the sales price without penalty.
5. Title Search and Insurance
The title company and your lawyer will both research the title to look for defects, liens, and other problems. If the title has a defect, it must be cured before you can close on the deal. Common defects that might be present include unpaid property taxes, encumbrances, unknown easements, and other similar issues. The seller should be able to clear up any defects and must present a clear title. Once the title is cleared by the title company and your lawyer, you should purchase title insurance. While the lender will have title insurance to protect itself, the lender's title insurance will not protect you. Title insurance policies are inexpensive and can protect you from significant losses if you discover title defects after you close on the house.
6. Preparing for Closing
Once you've completed all of the previous steps, it will be time to prepare for closing. Your lender should send a settlement statement to you that lists all of the closing costs you will be responsible for paying. You'll need to arrange to pay the closing costs such as by arranging a wire transfer or bringing a cashier's check to the closing.
A couple of days before your scheduled closing, you'll complete a final walkthrough of the home with your real estate agent. This walkthrough allows you to confirm the seller has completed any agreed-upon repairs and hasn't made significant changes to the home since you signed the real estate contract. It will also allow you to confirm the property is vacant and that the seller has removed all of their furnishings other than what they agreed to leave with the property.
7. Closing
Closing is the final step of the real estate transaction. You'll need to bring two forms of photo identification, payment for the closing costs, and anything else you are asked to bring. While some closings are held remotely, most are in-person meetings attended by the parties involved in the transaction.
At the closing, you and the seller will sign multiple documents. The lender will remit payment to the seller for the home, and you will receive the keys to your new home. Your mortgage and deed will be recorded with your county, and you will be free to move in, complete renovations, or do whatever you want with your new home.
Get Help From a Real Estate Lawyer in NJ
There are a lot of moving parts involved in a real estate transaction. If you are preparing to buy a home, it's best to work with an experienced New Jersey real estate attorney to ensure your rights are protected. Contact the Ziegler Law Group today to consult a real estate lawyer by calling (973) 533-1100.
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