Closing: What It Is, and How to Pull It Off Without a Hitch
When you buy a house or an apartment, there are several steps: You decide how much money you can spend; find a property you like; make an offer; negotiate an acceptance; sign a contract; line up your financing, and then close on the property.
So, in some sense closing is what you’re working towards. It’s the point where you sign the papers that make the home legally yours, and it’s usually when you get the keys. (Note that it’s often not when you move in; that usually comes hours, or even days, later.)
The exchange of “money for keys” is very similar to what happens when you rent. However, there are a couple of big differences when you’re buying instead of rent, and there’s more opportunity for things to go wrong.
Let’s take a look at some of them, so they don’t happen to you:
What’s Supposed to Happen: A representative from your lending bank shows up with the money for your mortgage loan.
What Could Go Wrong: In your “commitment letter,” the lending bank outlines certain conditions in order for your closing to happen (for example, you can’t close until you buy insurance). . You could forget to fulfill or violate one of the conditions (for example, by changing jobs between the time your commitment is issued and the time you close).
How to Prevent It: When your commitment letter comes, read it carefully to make sure that you are doing everything you’re supposed to do. Often there’s a list involved, so if the letter says, “your commitment is conditional on your doing A, B, and C,” go ahead and do A, B, and C. Also read the letter to see if there is a list of what violates your commitment. A common commitment breaker is a changing financial status, so don’t change jobs or make a major purchase between commitment and closing. As Michigan mortgage banker David Hall puts it, “Wait and sit on the milk crates for the first few weeks in the new home.”
What’s Supposed to Happen: When you finish signing the paperwork, your broker is supposed to put a full set of keys in your hand, including keys to the front door, the mailbox, and the bike shed.
What Could Go Wrong: The seller could forget to bring keys to closing (sometimes that’s a mental block because he or she doesn’t want to let go of the property) or you find out that the side door key has been lost since 2005.
How to Prevent It: Have your real estate agent contact the seller to make sure that all the locks in the house are in good working order and to remind her to bring a full set of keys to closing. If you are doing your walk-through of the property right before closing, that’s a good time to remind the seller, too.
What’s Supposed to Happen: If you’re getting a mortgage, the bank is supposed to itemize its charges on a form called the HUD-1 Settlement Statement, which indicates money going between the seller and the buyer.
What Could Go Wrong: Although you’re supposed to be able to examine the HUD-1 in advance, often the charges on it are actually worked out at closing by the buyer’s, seller’s and bank’s attorney. So, you may see it late, not understand it, and leave without a copy of it (which you’ll need later when you file your income taxes).
How to Prevent It: About.com has a blank HUD-1 on its homebuying site. Take a look at the form before your closing so you have some idea of what it looks like. At closing, take a few minutes to read the form and make sure that everything looks like you expect it to. Also, ask your lawyer to make a copy of the form for you since your accountant will need it come tax time.