The Closing Process
Wouldn’t it be awesome if the closing of a real estate transaction was like buying a new pair of shoes or HDTV, just strolling through store aisles, pick out what you want and head straight for the register. Unfortunately this just isn’t the case, because real estate transactions are complicated and many times involve 10-20 different parties including real estate brokers/agents, buyers, sellers, attorneys, accountants, employers, inspectors, appraisers, lenders, government, non-profits, and often contractors. Because of this, transactions can take 25 and 45 days to close even the simplest of loans. An experienced real estate and lender team can make this process manageable and help you avoid transaction cancelling and loan denying mistakes.
7 Steps of the Real Estate Transaction
Starting the process
Once you have an accepted offer back from the seller your real estate agent will set up title/escrow, deliver contract to the lender, and order any inspections needed. The desired title/escrow company will receive the contract and earnest money deposit and begin the title search. The mortgage lender will take a full application, provide disclosures, and order the appraisal. Your agent will then order inspections you have selected (home, roof, pest, structural). You should be shopping for home insurance and providing all documents necessary for obtaining mortgage.
Title search and examination
Title uses public records to perform the search. During the search current and past mortgages, deeds, paving assessments, tax liens, wills, divorce settlements, HOA fees and other items that pertain to the title of the property will be found. Title examination is the review of the documents found during the title search that affect the title to the property. Once the title examination is complete the legal owner is confirmed and the debts owed against the property are determined. Once the search and examination has been completed a preliminary title report is created and sent to all parties.
Processing and Underwriting
Processing an underwriting are loan terms associated with the lender and associated with the two phases a loan goes through. Processing is the gathering of information like verification of income, employment, rents, credit, taxes, and assets in order to provide a suitable file to underwriting. Underwriting uses the information provided in the loan file to approve or deny a loan. A good lender and processor team will know exactly what an underwriter is looking for and provide all the information in the processed loan file. During this process you should be on high alert and provide all information required in timely manner.
Document preparation and/or request to produce
The escrow agent reviews the instructions and requirements from the new lender, reviews instructions from other parties to the transaction, reviews legal and loan documents, assembles charges, and prepares closing statements (HUD1) and schedules the closing.
Once the loan and title paperwork has been compiled the seller and buyer sign documents with the escrow agent or notary. This process can take up to an hour depending on how fast you can sign.
Funding and Recording
After the documents have been signed and all prior funding conditions have been completed the lender will fund the loan. Escrow will forward payments to any prior lender and pay all parties who performed services in connection with the transaction (who haven’t already been paid). The recording process is when the legal binding loan documents you signed are taken to the local county recorder’s office for recording. The actual recording is simply, when your documents are time and date stamped by the county recorder’s office and recognized and filed as an official public document. That’s it – You are now a home owner
After the signing has been completed, the escrow/settlement agent will forward payment to any prior lender, and pay all parties who performed services in connection with your closing (if they have not been paid). The transaction documents are recorded in the county in which the property is located. Title insurance policies are prepared and sent to the new lender and to you. This all happens without any further actions by the buyer or seller.
4 Ways to make your loan processing easier
Update Income / Asset Documentation
Save your lender the hassle of having to track down your financial and asset information by providing it as you receive it. When updated info is provided a lender can move through the process faster. Items to update include bank statements, taxes, and pay stubs.
Don’t apply or obtain new credit
Credit is run in the beginning of the loan process, but it’s also done at the end. Do not obtain new credit, because it could un-qualify you for the loan that was supposed to close. Buying a new car, tv, appliances, or G6 airplane will factor into your debt-to-income ratio and may complicate or prevent you from obtaining a loan. Just wait until the loan process is complete before buying that hovercraft.
Don’t move money or deposit cash without talking to your lender
All assets used for the purchase of a home must be sourced and tracked. This means the Apple Stock you just sold must have a traceable path from the sale all the way to your bank account. Checks deposited from your parents must be accompanied by a gift letter and a copy of their bank statement. Yes this is extreme and irritating, but that’s why I’m warning you to inform you lender before you make these deposits. Untraceable money can leave you with insufficient funds to close and prevent you from purchasing the home of your dreams.
Tell the lender about all employment and life events such as promotions, maternity, medical time off, extended vacations, job stability, etc. When you provide information it can prevent objections by the underwriters. Gaps in employment explain lower than normal income and delinquent credit.