Closing on a house is both an event and a process. The event is the closing itself: a meeting of interested parties that may be over in an hour. The closing process, which is the time between your agreement with the seller on the purchase terms and the closing day, can take 30 to 45 days. Understanding the closing process and its various steps can help you streamline the closing process and avoid unnecessary delays.
What Is Closing On a House?
The term “closing” sometimes causes confusion because it is applied in two different ways:
- The closing process is the sequence of events between agreeing on a deal and the actual closing.
- The closing itself is a meeting at which you review and sign all of the required documents and pay your closing costs.
The process and the event are closely linked and you need to understand what to expect from both.
The Closing Process
You’ve gotten pre-approved for a mortgage, looked for a home, found the one you like, negotiated with the seller and agreed on a deal. It seems like that should be all you need to do, but there’s more.
To complete the closing process smoothly and without delay, you’ll need a solid team of experts on your side. Consider retaining some or all of these experts:
- An experienced real estate agent. Your real estate agent will coordinate the closing process, advise you on what to do and when and keep you posted on developments.
- A real estate attorney. Your closing will involve detailed contracts and loan documents. An experienced attorney is your key to interpreting this mass of paper and assuring that there are no hidden surprises.
- A home inspector. A home inspection is necessary to assure that there are no serious problems with a home that could require extensive (and expensive) repairs. You’ll have to pay the inspector but the security provided by a professional inspection is worth the price.
- A title insurance agent will search for any outstanding liens on a property and provide insurance that will cover any losses you may have from pre-existing liens.
- An escrow officer manages money and closing documents. Your escrow officer will establish an account to hold funds until the deal is complete and the funds can be distributed.
These professionals will work with you, the seller and your lender to identify problems and avoid kinks in the settlement process.
There are things you will need to do before the formal closing date:
- An appraisal assures your lender that you are not borrowing more than the home is worth.
- A home inspection should identify any issues with the house that have not yet been discussed.
- A pest inspection is necessary to make sure that termites or other pests are not creating unwelcome surprises.
- Title inspection will reveal any outstanding liens on the house from tax shortfalls, home equity loans or other issues.
- Homeowner’s insurance is generally required by lenders. You’ll need a policy ready for your closing.
- Review of loan documents. You and your attorney need to review every word of the loan documents.
- Review your closing disclosure form. This form will include a detailed breakdown of your closing costs. Compare it to your loan estimate and clarify any discrepancies.
- Final walkthrough. Before you close the deal you and your real estate agent should do a careful walkthrough of the property to assure that nothing you paid for has been removed and the property is in the agreed-upon condition.
Start early to be sure you’re ready!
If any of these steps reveals issues you weren’t aware of, you may need to sit down with the seller and renegotiate portions of the deal. Completing these steps as early as possible can prevent closing delays.
The Closing
The closing is a meeting that includes the buyer, the seller, the lender and their representatives. Agents and attorneys for all parties typically attend a closing. The meeting will usually be held at the office of a title company, an attorney or the lender. You will need to bring several items:
- Your Personal Identification
- The Closing Disclosure
- Payment for Your Closing Costs and Down Payment
Compare your Closing Disclosure to your Loan Estimate before the closing. If any of the cited costs are significantly different, discuss the discrepancy with your attorney and real estate agent and ask them whether the changes are legitimate or if they should be negotiated.
Several things will happen at the closing:
- Documentation of Homeowner’s Insurance and Inspections
- Signing Loan Documents
- Resolution of Any Final Issues
- Payment of Closing Costs
- Payment of Loan Funds to the Seller
In some cases, you may set up an escrow account to cover property taxes and homeowner’s insurance.
In most cases this process is straightforward and the closing is completed in around an hour. If you see problems in any of the documents, though, you should not sign them until the issues are resolved to your satisfaction.
What Costs Will You Pay During Closing?
Closing costs will be listed in both your Loan Estimate and your Closing Disclosure. They are likely to include several items, such as:
- Remaining Down Payment
- Origination Fees and Third-Party Fees
- A Portion of Your Property Taxes
- Interest That Will Accrue Before Your First Mortgage Payment
- Part of Your Homeowner’s Insurance Premium
- Your Title Insurance Premium
Always compare the costs listed in your Loan Estimate with the listing in your closing Disclosure. They should be identical or close to identical. If they are not, ask for an explanation. Your closing costs will usually range from 3% to 4% of your new home’s purchase price. You may be able to negotiate some costs.
You should check with the title company whether they require a wire or you should prepare cashier’s checks to cover your closing costs and your down payment.
Conclusion
Buying a home is a complicated process and the closing requirements can seem overwhelming. They really aren’t. People like you successfully complete the process every day. Listen to the professionals you’ve retained and pay attention to details. Soon you’ll be ready to move into your new home!
