To the new real estate investor, purchasing a real estate investment property can be both exciting and, at times, an overwhelming experience. That being said, there is certainly no denying that owning a real estate investment property when purchased through sound due diligence and proper money management can be one of the best ways to add an excellent source of secondary income. Make your hard earned money work for you!
There are several key aspects to the process of buying an investment property. Two of the more common questions that all new buyers frequently have are:
- What does the term “closing” mean?
- How does the closing process work?”
Closing on a Real Estate Investment Property
Closing is the term used to describe the point in the purchase process where the title to the property transfers from the seller to the buyer and in return, a mortgage is provided by the buyer to the lender. This may sound a bit confusing to the first time investor but the more that you educate yourself about the process the more you will see that it’s not at all complicated. In fact, most of the work is done for you!
It’s very important that during the closing process it’s made clear to you and you completely understand the “costs” that will be associated with the closing of the property that you have decided to purchase. When trying to obtain a loan the lender should be prepared to provide you with an accurate estimate of all closing costs before you place a contract on the property. The lender has 72 hours after you submit the loan application to provide you with this information so you can eliminate any unexpected costs or surprises upon signing of the contract to purchase the property. Make sure that you know all closing costs you may be responsible for before you go ahead with the purchase.
As soon as the price offered and contract is accepted by the seller, the closing process is underway. It’s very important to ensure that all of the necessary documents are obtained and prepared for you. Finding a settlement agent on your own is one option that you can utilize to have the documents prepared for you in time for the closing. It can also be helpful to ask your real estate agent or lender if they have one they can recommend or have worked with before. The settlement agent will take over the closing process from there and make sure that all monies (deposits) involved are deposited and held in escrow until the closing is complete.
It’s also important to know just what the title status is on the property that you plan on purchasing. By searching the public records for any title information on the property, it will reveal any issues that will need to be resolved prior to the property exchanging hands. Such issues can be that the previous owner failed to pay the local or state taxes on the property. Another common issue could be that there may be an outstanding mortgage or tax lien. These issues have to be taken care of before the closing process can continue. Depending on the contract, these issues will either be absorbed by the seller or the buyer as per terms of the contract.
The last step in the closing process is for the settlement agent to prepare the documents that show just exactly what the closing costs will be. Often called the HUD-1, it simply defines the terms of the contract as far as who will be responsible, between the buyer and seller, or all closing costs involved.
Finally the day of closing arrives! You are just one step away from owning your first real estate investment property, ready to join the likes of Donald Trump. You arrive to sign the necessary documents that haven been prepared for you and after the signing is done the house is officially yours. Depending on the status of the house, it’s either ready for the next step which could be to start renovations or advertised to be rented out to start earning you money. Job well done!