In today’s highly competitive market, North Carolina residents want to make sure they understand the ins and outs of a real estate closing so as to avoid unnecessary complications that may hold up the deal. Until all parties have signed on the bottom line, however, anything could happen that could disappoint the expectations of one or both sides.
There are important steps in the process that occur between the signing of the purchase contract until final closing, whether you are paying cash or have lender financing. Even after closing, federal law permits buyers who are refinancing with a mortgage to pull out of the deal. Called the “right of rescission”, they have until midnight of the third day of closing to cancel the mortgage. This option is not available to new home purchasers.
What goes on during closing?
There are several stages to a real estate closing, and the whole process usually takes several weeks unless the buyer is paying cash. Carefully reading what is in the documents you are signing is essential to understand your financial obligations.
Taking care of financing, inspecting the property for defects, and negotiating contingencies and final purchase price are all necessary steps in the process:
- Initiating the closing. The closing begins with the signing of the purchase contract, which outlines deadlines for steps in the process, such as inspections, assurance of credit and any contingencies to negotiate.
- Obtaining financing. In this stage the buyer must provide financial statements to the lender to receive a mortgage commitment letter. The buyer will likely need to order a home inspection and demonstrate good credit to guarantee the fulfillment of the down payment.
- Property and title review. Before approving the loan, the lender will order an appraisal to determine if the estimated value of the property is close to the proposed sale price. If the home inspection reveals any issues with the property, the contingency in the contract should allow the buyer to walk away. They can also work with the seller to fix these problems or adjust the sale price. The title company will review the chain of title to search for any title defects or unresolved liens.
What happens if there are problems with the property?
There are many potential pitfalls during a real estate closing, and putting down the earnest money does not guarantee a smooth process. For example, if the appraisal is too far below the purchase price, the lender may only agree to finance the appraisal value. When this happens, or if the inspection reveals issues with the house, the buyer can request a second appraisal or renegotiate the terms of sale or repairs with the seller.
If the seller backs out because they got a better offer or don’t want to make repairs on the home, it is possible to sue for specific performance on the sale agreement. If the buyer backs out, they will likely lose the earnest money unless there the contract allows this option.
North Carolina law requires the presence of a licensed real estate attorney at closing. Their role is to provide a statement of purchase and sale costs, recording and title insurance expenses or taxes in the settlement statement. But an attorney can also facilitate the entire process from start to finish and help protect the buyer from legal complications later.