What is a Closing?
A real estate closing, also called a settlement, is the process of transferring ownership of a home from the seller to the buyer. How long a closing takes can vary depending on the situation, but there are two main parts to expect: The mortgage portion and the title closing. The former includes the buyer filling out and submitting all paperwork required by the mortgage lender; the latter refers to the seller signing the deed and handing it over to the buyer, officially conveying ownership.
Who Gets Invited?
The list of people who attend a closing isn’t lengthy, but likely includes more people than you’d imagine. Different states have different requirements, but generally a representative of the lender, a title agent, the buyer, the seller, and attorneys can all be expected. Some states will allow different entities to handle the closing procedure, so check with local policy to know what to expect in your area.
Of note: Attorneys aren’t always required, but retaining counsel is a good idea regardless. Having a second set of eyes trained in the legalese used in closing documents ensures red flags don’t fly under the radar.
What are the Buyer’s Responsibilities at Closing?
If this is your first time closing on a house, don’t worry about missing something: We’ve got the entire process outlined in nine easy steps.
1. Prepare For Closing by Opening an Escrow Account
The first step to closing on a house involves opening an escrow account that will be held by a third party, such as a bank or your title or escrow agent. This neutral party account holds on to money involved with the sale, such as any required deposits or earnest money.
2. Obtain a Home Inspection
You should hire a qualified third-party inspector to conduct a walkthrough of the home and carefully inspect everything, inside and out. A separate inspection for pests is also necessary. Inspections are important because your mortgage lender may require one to process your loan. As Patricia Vosburgh of NextHome attests, “We go above and beyond for our buyers and make sure that all permits are pulled, ensure they are not buying a ‘lipstick flip’ and are able to provide them with any information they need to make a sound judgment.” If a pest inspection reveals an infestation or a minor situation involving termites and other pests, it has to be resolved before the mortgage company will let you proceed with the closing.
3. Renegotiate Purchase Contract, if Necessary
If you do detect any issues with the home you’re looking to purchase, you have the option to renegotiate the price — that is, as long as you haven’t accepted a purchase contract that states “as is,” which means that the seller isn’t obligated to cover any repair costs or lower the initial price. It doesn’t mean that you can’t ask, of course. If the cost is going to be a highly significant one and the seller won’t budge, you can back out of the contract.
4. Complete Your Mortgage Application
You will need to go through the mortgage application and approval process, which involves submitting reams of paperwork and financial records, so be sure to have recent tax returns, income statements, bank statements, etc. ready to go. Your lender can provide you with a list of necessary documentation so you can get ahead of the game. Strongly consider getting preapproved by a mortgage lender before you began your home search. It can help speed up the final approval process and can give you a rate lock on your interest rate so you won’t be vulnerable to market changes. You should receive a loan estimate, including your loan terms, estimated closing costs, estimated payments, and any other loan considerations. You should also receive an estimated closing date.
5. Don’t Forget the Lender Appraisal
Most mortgage lenders will request an appraisal of the home’s value, and as the buyer, you typically pay the appraisal fee. The goal is for the appraiser to value the home for at least as much as your agreed purchase price. If the appraisal is low, you may need to renegotiate the price with the seller as a lender will approve only to the appraised amount.
6. Get Title and Homeowners Insurance
Shop around for title insurance (sometimes referred to as hazard insurance), as well as work with a title agent to perform a title search so that no one else can step in and make a claim on the property and to ensure that there aren’t lingering issues.
7. Time for the Closing Documents
Once your loan is approved, you’re almost to the finish line. The escrow or title agent should send you a formal notice of the actual closing date and time. It will include a list of what you need to bring to the closing table. You should also receive a closing disclosure that outlines your mortgage loan obligations, closing costs, etc. It’s a good idea to review this with your attorney, if you have one, or real estate agent.
A note on closing costs: Many escrow companies make an effort to have closing fees be minimal, but buyers need to do their due diligence and find parties that won’t tack on a plethora of fees that will raise costs higher than they need to be. Research what fees are typical in your area. Some sellers may agree to take care of closing costs, and this is typically agreed upon at the contract phase.
8. Final Walkthrough of New Home
Within 24 hours of your scheduled closing, you may choose to conduct a final walkthrough to make sure everything is in order and nothing has been removed that is included in the purchase contract. After that’s done, your earnest money or deposit in the escrow account will be applied toward your down payment on the home and you’ll need to arrange to cover all closing costs.
9. Sign on the Dotted Lines
The final step is to sign the papers. It’s good to take your time with this as the agreement can be up to 100 pages in length. Carefully analyzing the fine print will save you a lot of time and worry if something seems amiss down the line. One key thing to do is to ensure your interest rate is correct and that there’s no penalty for prepayment. If you have concerns about understanding the document, be sure to reach out to an attorney.
Closing on a house seems like a cumbersome task, but the toughest part of it is the waiting. If you take the time to enlist the help of good professionals at every stage of the process and you feel confident that you’ve done your research, you’ll look forward to the day when you get the keys and can cross the threshold to your new home.