Congratulations! Your home offer has been accepted by the seller.
Now comes the closing process, which is a murky concept for most buyers. How long does it take to close on a house? What do you have to do and what does someone else do? Who’s even involved? Read on to find out.
1. Transfer your earnest money
Usually, the seller chooses an escrow company and opens an account with them before selling their home. You’ll send your earnest money deposit to this account. Your deposit is generally three to five percent of the purchase price, and the amount will be in your contract with the seller.
Your contract will also specify when you need to send your deposit to the escrow company. Expect it to be just a few days after your offer is accepted. It’s very important that you do this step on time—otherwise, you’ll be in breach of contract and the seller can cancel the deal. In a crowded market, it’s not uncommon for a seller to take the opportunity to walk away in favor of another buyer’s offer.
The escrow company will give you instructions about how to send the payment. These will likely include a choice of online transfer, sending a cashier’s check yourself to the escrow’s office, or having your bank wire it in. Remember that it will take time for your bank to send the wire, so make sure you work with them to hit your deadline. If you choose to do an online transfer, check if you have a daily max that you’re allowed to transfer out of your bank account.
Note that the escrow company is often also a title company. In addition to ensuring that the funds for the purchase are safe, their role is also to confirm that the property rights are clear and the home is sellable.
2. Finalize your mortgage loan
Now it’s time to shop around and compare quotes for loans and interest rates available from the lenders you may want to work with and choose one to lock in. Typically, you need to do this within about a week in order to stay on track to close. Making a decision on a rate you’re comfortable with and even what type of lender to choose can be complicated. It’s never too early in your homebuying journey to start to learn about mortgages so you can make a confident decision when the time comes.
After you choose a lender and loan type, the lender will lock in your interest rate. Locking in your rate secures it for a certain amount of time, typically 30 or 60 days, that allows you enough time to get through the rest of the closing process without any surprises on your loan. The lock protects your rate from future price changes, so if rates rise tomorrow, you still get your pricing from today.
3. Complete your escrow forms
The title and escrow company will send you a form to fill out, requesting information to complete closing and prepare for the transfer of property rights. They’ll run a search to confirm that you are who you say you are and that you have no financial judgements against you.
Generally, the company will want you to return these forms as soon as possible. However, you may not have all of the information yet, such as what insurance company you plan to use. You can fill out most of the form and let them know that you’re still making those decisions.
4. Buy your home insurance
Home insurance protects you financially in a variety of situations. Policies will vary, so it’s smart to compare several plans from several different companies, just like with your mortgage. You can also choose to buy directly from an insurance company or through an agent who works with multiple companies.
Generally, home insurance will protect you from losses due to:
- Natural causes including snowstorms, storms, fires (caused by natural causes), wind disasters, hail, severe cold, and sleet.
- Human factors including theft, airplane disasters that damage your home, and damage to your home from car accidents. This doesn’t cover personal liability, though. If your dog bites someone while they’re on your property, then that’s covered under personal liability (one such case recently settled for $120,000!).
- Unexpected expenses because of issues with your plumbing, HVAC system, or electricity.
If you already have other types of insurance, such as car insurance, it’s smart to start with a quote from the company you’re already using. Often, there are discounts for bundling multiple types of insurance with the same provider.
When you apply for insurance, you’ll be asked for information that may seem tricky to find, such as the roof material and type of foundation. Refer to your home inspection or appraisal report to find this information.
You may also want additional insurance, such as earthquake, flood, or fire insurance, based on where you live. Lenders may even require a specific type of insurance based on where your home is located. Look into your situation early on because these types of insurance are an additional cost. You may even be able to take on the seller’s existing flood insurance policy with their rate, which will likely be more affordable than current rates.
In addition to home insurance, look into title insurance. Title insurance protects your clear ownership to the property, so no one can claim they have a right to it, and it’s separate from homeowner’s insurance. Some lenders require this coverage to fund your loan. Even if your lender doesn’t require it, you might want it.
HOA insurance may also be a consideration for you. If your new home has an HOA, check the seller’s disclosures or HOA package to find out if there are any restrictions on which insurance companies cover your HOA.
5. Wait patiently. (We know it’s hard!)
The lender and escrow company will need some time to take care of their tasks. For example, the lender will have an appraiser value the home to be sure they’re not lending you more than the home’s determined value. (There are several ways to deal with a low appraisal!) This step alone can take more time than you might expect!
The lender may have conditions that you need to clear before they will issue final approval on your loan. Make sure to clear out those conditions right away by supplying your lender with the right documents, since every delay can compound the processing timeline and delay close of escrow.
Before signing your final papers, you’ll also do a walkthrough of the home to ensure it’s in similar condition to the day you went into contract. Most often, you’re buying the property in as-is condition, so this isn’t the time to look for broken window screens or other small fixes. This is a chance to make sure no significant damages took place since you offered to buy the home. It’s also your chance to visit the home before moving in!
You may also have contingencies that need to clear before the closing process is finished.
6. Sign your papers and get your keys!
Before you sign your closing documents (and definitely before the close of escrow), you’ll typically need to wire the rest of your down payment to the escrow company. They’ll need to receive this deposit as well as the remainder of the purchase price from your lender before they release the home sale to record. You can also bring payment in the form of a cashier’s check to the signing appointment.
Once the lender has settled their end of the loan, you’ll sign your closing papers with a notary. Usually, buyers sign at the escrow office, but a mobile notary may also be available to come to your office or current home for a fee. Signing generally happens a day or two before your official closing date.
Regardless, signing must be done in person. So if you plan to be out of the country, let the escrow company know upfront right after you’re in a mutual agreement to buy the home so they can work to help you designate a power of attorney to sign while you’re unavailable. If you’re already outside of the country, then you’ll need to contact the US Embassy to check out your options.
After you sign, the escrow company will file your papers as public record, officially transferring the home’s ownership to you. You’re now the owner!
One last thing …
There’s an unofficial seventh step: celebrate!