Everything you need to know about the closing process
Closing is the final step before you officially own your new house. On closing day, the title passes from seller to buyer, making the buyer the legal owner of the property.
If it’s your first time purchasing property, you may not know what to expect at closing. It’s a simple process that requires you sign closing documents. But things can go astray if you don’t prepare. Take these twelve steps to prepare for closing, and contact a Flyhomes Agent in your area if you have any more questions!
- Closing is the final phase of the mortgage loan process, where the buyer becomes the legal owner of the property and takes the keys
- The closing process is 12 steps that you should complete in advance to avoid issues on closing day
- You can back out of purchasing a property right up until closing, so if you feel that something is off, speak up!
- Review your purchase agreement before backing out to avoid losing your deposit
How closing works
After signing a purchase agreement, the buyer and seller will choose a closing date. Closing usually takes place 30-45 days after the seller accepts your offer. Choose a closing date that gives you enough time to organize all documents and financing.
A closing agent will oversee the closing process at either a title company or escrow office. The closing agent is usually a real estate attorney or official from the title or mortgage company.
During closing, the three parties involved (buyer, seller, and lender) review, sign, and date a number of documents. Expect closing day to last 1-2 hours, although it may take longer if there are discrepancies.
The process is called “closing” because the escrow account holding the funds for the property is closed. Once all closing documents are signed, the buyer is handed the keys to the property.
The last week before closing
The week of closing, your mortgage lender will send the buyer a “closing disclosure”. This document outlines exactly how much you owe for closing costs, which you’ll pay via wire transfer or cashier’s check on closing day. Closing disclosures also include loan terms and projected mortgage payments, as well as other mortgage loan details.
Expect your mortgage lender to do a final credit check and income verification in this time, so keep your finances healthy throughout this process.
Before you get there, though, here’s how you can prepare for a smooth closing:
How to prepare for the closing process
The closing process involves a lot of paperwork. It can seem tedious, but as long as you prepare all these documents ahead of time, closing day should be a breeze.
Make sure to bring two forms of ID, all documents, and any payments you have to make the day of closing (such as closing costs). Your agent should be able to help you keep these documents organized and signed on time.
Here’s how the closing process unfolds from start to finish:
Once everyone agrees on a closing date, the buyer and seller will enter escrow. Escrow is when a neutral third party agrees to guard all funding and documents associated with your real estate transaction in a separate account. This helps protect both you and the seller throughout the closing process should something go wrong with the deal.
Buy title insurance & perform a title search
After you’ve entered escrow the first thing to do is a title search and then purchase title insurance. This is a very important part in the process. Don’t skip it, otherwise you may run into problems when attempting to transfer the title to your name.
Running a title search will show you whether the home is even the seller’s to legally sell. It also allows you to see if there are any liens on the property or unpaid property taxes that you would inherit. Title insurance protects the buyer in the case you miss something in the title search.
Resolve real estate contingencies
Early in the closing process, you’ll resolve any contingencies outlined in the purchase agreement. Real estate contingencies are requirements both the buyer and seller agree to meet if the contract is to stay binding.
If either the buyer or seller fails to meet these requirements, one or both of the parties can be allowed to back out of the deal without penalty. Work with your real estate agent to make sure you resolve all contingencies before closing day.
Get pre-approved & lock in an interest rate
Unless you’re buying your home in cash, you’ll need to get pre-approved for a mortgage loan before you can close on a house. When you get pre-approved for a loan, your bank has already decided on the amount they are willing to give you. That means your offer is not likely to fall through for financial reasons.
Although it’s rare for a mortgage to fall through during closing, it is possible. If your bank finds something in your financial history that makes them withdraw their loan, you won’t be able to close. A low appraisal, issues with an inspection, or if you don’t meet contract contingencies can all cancel the loan as well.
Mortgage lenders can also deny you a mortgage loan if your financial situation changes drastically before closing. If you lose your job or make a major credit purchase (like a car), the bank will likely get nervous.
Get pre-approved to head off at least some of these possibilities. Plus, pre-approval locks in your interest rate on the mortgage loan. Interest rates fluctuate daily, so it’s in the buyer’s best interest to secure the lowest rate possible before you close on the property.
Purchase homeowner’s insurance
Purchase homeowner’s insurance before you close. That way you and your home is protected from day one. You aren’t required by law to have homeowner’s insurance, but most mortgage lenders make it mandatory to close.
The price of homeowner’s insurance depends on a variety of factors such as your location, details of your home, and the value of your belongings. The average American pays $1200 a year in homeowner’s insurance.
Schedule a home inspection
Home and pest inspections are often listed as contingencies in the purchase agreement because they could influence the value of the home. You don’t need a home inspection by law, but if you don’t request a home inspection you’ll be on the hook for any expensive repairs once you take the keys.
Renegotiate the offer
If the home inspection reveals issues with the property and the seller won’t address them, the buyer can try to renegotiate the price.
You can request that the seller drop the price to reflect the difference you’ll be spending on whatever repairs you need to do. If you have a home inspection contingency in place, you can also choose to withdraw the offer if the seller is unwilling to cooperate.
Calculate your closing costs
Closing costs fluctuate with each house. But read this article to understand what you’ll likely pay so you don’t end up getting hit with surprise ‘junk fees’. Junk fees are service fees charged by escrow companies that aren’t always necessary.
Take the time to carefully review your closing costs, looking out for itemized charges such as administration fees, email fees, or processing fees. These line items are often negotiable.
Deposit funds into escrow
Once you’re done negotiating the final price of your home, it’s time to deposit money into escrow. By this point, you’ve probably already paid earnest money. These funds usually go towards the down payment, so check with your escrow company and agent to see how much you still owe.
Perform a final walkthrough of the property
Before signing any documents, do a final walkthrough of the property. If you can’t make it, your real estate agent can do it for you, but it’d be best if you took one last look at the property before it becomes yours. This is to make sure that the home hasn’t sustained any damage between the time you first saw it and closing day.
Hire a real estate attorney
Although hiring a closing attorney isn’t mandatory, it helps everything go according to plan. Real estate transactions involve a lot of documentation—especially estate closings. If this is your first time going through the homebuying process, it’s best to hire legal representation.
Sign all paperwork
The last step will take place the day of closing, which is the signing of all documents related to the home purchase. Both you and the seller (or listing agent) will meet in-person to finalize the transfer of ownership from one party to the other, make final payments, and sign and date all paperwork.
On closing day, the you take ownership of the property from the seller. The buyer will bring a cashier’s check to cover remaining closing costs and fees, as well as two forms of ID and all documents related to the home purchase. The bulk of what a buyer does on closing day is review and sign documents such as:
- Bill of sale
- Property deed
- Closing disclosure
- Transfer tax declaration
- Mortgage agreement and note
Prepare for closing ahead of time
When considering the many steps involved in the closing process, it’s hard to believe they all take place in less than six weeks time. However, it’s worth noting that the majority of these steps involve submitting paperwork and paying for expenses with money you’ve already set aside.
Additionally, you aren’t going through the closing process alone. Experienced real estate agents know how to guide you through the process with ease, so lean on your agent as you prepare for closing.
About the author: Vivian Tejada is a freelance writer and small business strategist based out of Providence, RI. She specializes in writing SEO blogs, property descriptions and website content for real estate companies. She’s also an avid traveler, location-independent and enjoys trying out new restaurants.