Dubai: Buying a new home is considered a milestone investment, but often times it is also a serious financial commitment, especially when it takes you decades to pay off the loan. This is why it helps to count your costs closely and save wherever you can ahead of turning a home owner.
“When buying a home, you may often feel you have little control over charges,” said Prakash Bhat, a real estate and mortgage consultant currently working out of Abu Dhabi. “You will then come across one such common charge, ‘closing cost’, right when you are on the verge of owning your home.”
Among a lot of other costs, you are expected to pay 2 per cent to 3 per cent of your home's purchase price in ‘closing cost’, also called the ‘cost of completion’ or ‘final settlement’, which is the end-of-contract fees that everyone from lenders to insurers charge to complete property ownership.
“Let’s say you're buying a home for Dh200,000. You can then expect to pay between Dh4,000 and Dh6,000 in closing costs. However, this cost comes into effect only if you and seller can agree on a closing date, as this date is not set in stone and can change for many reasons,” added Bhat.
When buying a home, you may often feel you have little control over charges. One such charge is the ‘closing cost’
How closing on a home purchase can cause delays
“Closing on a home purchase can take anywhere from four to eight weeks. Such a delay can prove not only costly but also time consuming. Sometimes a closing delay has nothing to do with the buyer or seller, but instead with whoever handling your loan at the bank.”
But can you fix a closing date on your loan in advance? Yes, because your lender will send you the disclosure containing the details of closing. “When shopping for a mortgage lender, ask lenders about their closing costs when you ask about their interest rates,” explained Bhat.
“This form lists exactly how much you'll pay each month for your home, when your payments begin, and what your interest rate is. The closing disclosure also lists your closing costs, giving you the chance to review them before you sign any documents at the closing table.”
There are several things that can delay the closing of a new home purchase. While most can be resolved quickly, here are the more common causes to be aware of in order to steer away from any potential financial or time-related costs.
What causes delays to closing on your new home?
One of the most common reasons why a real estate closing is delayed is because of unrealistic contract dates that were agreed upon in the purchase offer. However, Bhat also noted that the more experienced your broker is, the more appropriately the dates in a home purchase will be structured.
“Before your mortgage is approved, your lender pulls your credit, verifies your income, and verifies your employment to make sure that you can afford your monthly payment. The ‘closing cost’ covers those charges,” explained UAE-based consumer credit analyst Rajesh Markara.
“If your credit report shows new debts, mistakes, a sudden drop in your credit score, or even a recently reported late payment, you might have to fix things in the ‘underwriting’ stage of the home loan before you can close. This causes potential delays.”
In general, buyers who pay cash for their new home — instead of going through the mortgage application process — typically close faster. But even when paying cash, it typically takes at least a couple of weeks to close, according to experts.
Some lenders can waive closing costs in return of charging a slightly higher mortgage rate, or can let borrowers add closing costs to the loan amount. This can enable a home buyer or potential home owner to save on costs.
“It is extremely important that you have a crystal clear understanding of exactly how much money you will need to pay in order to complete on closing day,” added Markara.
“When the closing day comes around, you will be given a statement of cost adjustments, which explains all of the total costs (down payment, closing costs, etc.) that are required in order for the purchase of your home to be finalised. So factor those into your housing budget as well.”
This amount owing will not just include what is stated in the purchase agreement as the selling price, but also other payments and adjustments such as property transfer and legal fees, disbursements, maintenance fee, flagged Bhat.