The biggest misconception many buyers have has to do with the amount of money they’ll need to close, right behind that is the misconception about how long it takes for a contract to close; many people believe a contract can close in 30 days, but in New York, it’s more like 45-60 days from contract to closing.
My office employs a different strategy with clients; at the time of contract signing, I spend a good amount of time with the client reviewing the contract and making sure they understand the different clauses of the contract, their duties and responsibilities under the contract and the protections contained in the contract. We go over things like mortgage contingency clause, closing dates, C/O clauses, condition clauses, default clauses etc. that are contained in the standard contract that are of biggest concern to the client. After reviewing the contract I will do a “mock” settlement statement with them. This is a hypothetical situation where we pick a date in the future when we think we’re going to close and then we go over the costs associated with the closing. By doing this I am able to show the client how all the moving parts come together at the closing table so they have a better understanding on how the process works. By reviewing everything at the beginning the clients are in a better position and more relaxed during the course of the deal.
Preventing Unhappy Surprises
In every case I will calculate the amount they will need to close, including the amount of the down payment, as well the amount of the adjustments for items such as prepaid real estate taxes. If it’s an oil fueled house, we will also adjust home heating oil as well. Any other credits due the buyer or seller are discussed at this time as well and accounted for.
We also discuss lender “net funding”, Title costs and other closing fees at this time. I will explain to my client who are purchasing and obtaining mortgage financing about that when they borrow $300,000 it does not mean they get the whole $300,000 at the table. Most Lenders do something called net funding, which means they’ll get $300,000 minus the costs involved with procuring that loan, such as bank fees, short-term interest and escrow reserves, and those can add up to a few thousand dollars.
I will also go over my fee; because I usually get paid at the table, as well as title closing fees. Title fees include, but are not limited to, fee insurance and mortgage premiums, mortgage tax, ancillary search charges and possibly a new survey. We then come up with a number which is an estimate of how much they’ll need.
It is very important that these money issues are discussed with the attorney at the beginning of the process. I need to know whether or not my clients have the money in the bank before they start. If they don’t, they won’t be able to close, and knowing if they cannot afford to buy the house at the outset will save everyone a lot of time, money and heartache in the long run.
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