The New Jersey Real Estate Closing Process
The NJ real estate closing process breaks down into four major parts: the attorney review, inspections, the mortgage process, and finally the actual closing.
The Attorney Review
1. The attorney review process begins when an offer on the home is agreed upon by both parties and a contract is signed. This begins a 72-hour attorney review period. During the attorney review period, changes to the contract can be made (if agreed upon by both parties), and either party can walk away from the deal without penalty.
2. The buyer pays a ‘good faith deposit’ to the seller’s attorney or broker (not directly to the seller) upon signing the contract. This amount usually ranges from $1,000 to $5,000. The buyer pays the rest of the deposit (sometimes called earnest money) according to the time frame agreed upon in the contract, usually within a few days of the signing.
3. The buyer requests inspections they would like to be performed, according to the contract. These inspections must be completed by an agreed-upon date and can include:
4. Depending on the area or circumstances, the buyer might need additional documentation for the following:
Well testing. Homes with buried water wells must be tested in order to comply with New Jersey environmental safety laws.
Buried oil tanks. Older homes may have an oil tank buried on the property which can pose an environmental hazard. Removing it can be costly and should be taken into account during the review process.
Flood search. The property’s risk of flood damage must be assessed.
Septic certification. If there is a septic tank on the property, it must be assessed and certified to be in proper working condition.
Certificate of occupancy. This confirms that the property complies with building and zoning codes and can be lived in.
Smoke detector certification. This confirms that the appropriate number of smoke detectors are present and in proper working condition.
5. After these inspections, the buyer can ask the seller for repair work or a reduced sale price if necessary. In response, the seller can agree to or refuse the buyer’s requests, or continue to negotiate. If an agreement cannot be reached, the buyer can walk away from the deal and, in most cases, get back their earnest money deposit.
The Mortgage Process
The mortgage process can happen at the same time as the attorney review, and should be started as early as possible. It is recommended not to change your employment or do anything else that might affect your financial status during this process, as it can complicate matters.
1. The buyer submits a loan application to their lender (for example Fannie Mae), directly or through a mortgage rep.
2. The buyer sends personal financial disclosures to the lender, which can include:
Statements for all of the buyer’s bank and investment accounts.
Statements for any loans or rent payments the buyer currently has.
Two years of tax returns, made available to the lender via this tax form.
Contact information for the buyer’s employer, as well as pay statements.
Any information regarding child support, alimony, cash gifts, or any other financial considerations other than the buyer’s income. This information must be current and accurate so there are no surprises later.
3. The lender decides whether to approve the loan. If they do, they will send a loan commitment letter to the buyer agreeing to fund the mortgage so long as their terms are met.
4. The lender orders an appraisal of the property to ensure that the buyer is paying what the property is worth. If the appraisal finds that the property is worth much less than the buyer is paying, the lender can decline to fund the mortgage unless the price changes.
5. The buyer purchases homeowners’ insurance and title insurance, and sends a proof of homeowners’ insurance to the lender.
The Real Estate Closing
After the previous two processes are complete, they actual closing itself takes place. The real estate closing typically takes place in one meeting, where the buyer and seller sign all documents related to the sale and the buyer pays the balance of the purchase price. At this time, the buyer usually receives the keys unless otherwise agreed upon.
1. A title search is run prior to the closing, ensuring that there are no problems with the property that may affect it’s value, and to confirm the seller owns it and has the right to sell it.
2. A final walk-through of the property is conducted right before the closing, to make sure nothing has changed since the process began.
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A real estate closing can seem complicated and overwhelming at the outset.