Matt Faircloth
Getting to Closing
Contrary to those proclaiming that they’ll close on an offer right away, this isn’t possible. The truth is, it takes a while to close real estate deals. Today we’re diving into how long it really takes to buy a house (or any type of property, really).
These are generally the steps that are taken when it comes to closing. But depending on your schedule and if you’re willing to take some risks, you’re able to skip some steps. But for the purpose of this article, I’m just going to take you through all the steps of getting to closing.
1. Offer and Acceptance
This means that you made the offer and it got accepted. But you aren’t under contract until you have a signed agreement of sale from both parties and the deposit has been received. And by received I mean a third party representing the seller—like their attorney or real estate broker. Once this is done, the clock starts ticking.
2. Inspection Period
This is where you go into the property and verify it reflects what the seller told you about it. This is you doing your due diligence to ensure what you’re buying really is what you intended to buy. The inspection period plays into all types of investing: multifamily, commercial, single-family, etc. You want to make sure the property is in good condition, reflects the listing, is zoned properly, and so on.
The inspection involves a physical inspection, but also any other due diligence you need to do. This period lasts 15-45 days, with the norm being 30 days.
3. Title Search
This step occurs concurrently to step No. 2. A title search when a title company verifies that whoever claims to own the house actually does. This search will also make sure the deed is clean and doesn’t have any liens or encumbrances, as well as making sure the deed holders paid their taxes and so on.
All kinds of things come up in a title report, which shows how clean the title is. It will show a title commitment to you, the buyer. Remember that this stage is done by a third party (title company) where they do all kinds of investigating. This stage takes typically 30 days.
4. Bank Underwriting You
This stage is where the bank reviews your financials, tax returns, bank statements, etc. This is the bank approving you as a borrower. If you’re buying a single-family home that you’re going to occupy, this can also be called getting pre-qualified.
If you’re buying a rental property and not an FHA-mortgaged home, the bank is unlikely to begin this process until you’re under contract. They won’t want to spend their time on you until they know you’ve landed a deal.
This process can take anywhere from 45-90 days. It all depends on the bank and their process. In most cases, the bank won’t outright tell you it could take 90 days, but be prepared for it.
5. Bank Underwriting the Deal aka Appraisal
This is where you get loan approval. This doesn’t necessarily cost you a lot of money since it’s an application fee. But if you’re buying a commercial building, it will cost you more. Depending on the bank, they may do environmental impact studies (such as a Phase 1 Analysis). They may also send out an inspector to do a thorough inspection. (FYI, this will cost you.)
Usually, this process takes about 30 days. What some investors do in this stage (if they want to close the deal fast) is underwrite the deal before they’re pre-approved by the bank. This can then tighten the timeline.
Note: If you’re buying a small multifamily property, some investors don’t like to do this step (since money is coming out of their pocket) until the due diligence period is over, instead of letting the steps overlap.
6. Cure Period
This phase has a lot to do with what has taken place in the earlier steps. Maybe the property didn’t appraise for what you thought, the bank found you owe a contractor $10,000 for work done two years ago, or the property isn’t zoned correctly—whatever it may be. This stage uncovers things that need to be cured, hence the name.
This period needs to factor in all the potential issues with the property, the seller, or you. The cure period can affect any of these steps at any time. Depending on the issue, it could increase the timeframe for closing.
In Conclusion…
After all is said and done, the timeline to close on a property amounts to 60-90+ days. I’ve seen a lot less and a lot more. As of this writing, I’m undergoing a deal that has so far taken eight months to close. There were environmental issues and the is bank taking its sweet time.
Though the norm is 60-90+ days, be prepared for it to take longer. Or, I’ve given you ways to condense this timeline if you wish. But now you know the reality of closing a real estate deal.