One of the goals of most folks is homeownership. Understanding the house closing process is essential for a first-time buyer.
The more you know about the steps for closing on a house, the less likely you’ll make mistakes.
When you are preparing, it can feel like you are near the end of the buying process.
But things don’t always go according to plan when a closing occurs. House closings can spring surprises that delay your move-in date or worse.
The steps to finalizing the purchase and sale can sometimes be challenging, but you will hopefully be sitting at the closing table with your dream home.
The conclusion of a sale is a time to celebrate as you take a big step in your life. Homeownership is just around the corner.
A real estate closing is pretty straightforward, but getting there may not be. I will walk you through what you need to know from my experience as a Realtor for the past three decades.
I have been through thousands of closings in my real estate career. It is an exciting time but one where you need to be on your toes, especially when you’ve never done it before.
Considering what you must be ready for when you close a house will make the experience less challenging.
What Does Closing on a Home Mean?
It can sometimes seem mysterious when you have never been through purchasing homes.
A real estate closing is when the property will become yours at last.
On the day of closing, ownership will legally switch to you. It will be the final step in realizing your dreams of being a homeowner.
It will have been a while since you offered to the seller and paid the earnest money deposit. The initial purchase agreement you signed is probably a distant memory. You will have gone through negotiations where the closing date would have been set.
The agreed-upon date should have considered the time needed for the lender, title company, and other professionals to do their work to make sure everything is correct and legal.
This includes the title search and checking the property title for any issues so title insurance can be issued. Having a clear title is a crucial aspect of any home purchase contract.
This can mean closing the sale further away than you might have liked or imagined when you started your property search. But now, the date is fast approaching, and you must be ready for what will happen.
While passing papers is the last step, there are many things to do before the big day arrives.
Preparing to Close on a Property
Though the end of the home buying process is insight, you shouldn’t relax just yet. There are still important things to do to ensure your closing goes to plan.
Let’s review some of the most essential considerations. Following this checklist of procedures and steps will put you in a better position to have a stress-free process.
Getting The Right Help Before Closing
The people working on your behalf could be the difference between things going smoothly or going wrong with increased delays.
If you have an experienced real estate agent on your team, they will understand the local market and know the best professionals to help you navigate the process.
Once the sales contract has been signed, your buyer’s agent can help you contact experienced service providers, like home inspectors, attorneys, title companies, and more.
Getting Through All The Contract Contingencies
Part of the closing procedures will be satisfying all your requested contingencies.
Once you have found a team you are happy with, your buyer’s agent will help to prepare for the contingencies and ensure your contract is correct. You and the seller need to deal with many contingencies in the purchase offer before the sale can close.
If you are unsure about any contingencies or the paperwork you must sign, check with your real estate agent before proceeding.
Common home-buying contingencies you might have to deal with include the following:
The Inspections Are Crucial
So that you don’t buy a home with faults that will lead to unforeseen expenses, a home inspection is vital. They should uncover hidden problems that will otherwise be your responsibility when closing is completed unless negotiated into the home sale.
Depending on the loan program you choose, repairs could also be required. Many buyers will have a home inspection checklist to ensure nothing is missed. Inspections will ensure there are no items that need to be addressed.
The Home Inspection Report is Significant
Even with new construction, there is an excellent chance that the home inspector will discover problems. Many things in the report are likely to be relatively minor and won’t prevent the transaction from happening.
But there could be some more essential things you need to have fixed before purchasing the home, or that could make walking away from the property a better option.
Issues you shouldn’t ignore:
- Water damage
- Pest infestations
- Mold problems
- Electrical or plumbing problems
- Foundation damage
- HVAC issues
Any of these problems are likely to be expensive to repair. Even something like mold could easily cost a few thousand dollars to repair fully.
Water damage could indicate more significant issues and have an average $2,500 repair bill.
Termites could be a significant problem depending on your location, and this isn’t typically covered by homeowners insurance. Cracks in the foundations of a home could be a sign of long-term problems you will want to avoid.
If you get a home inspection report containing any of these things, you might want to consider whether continuing the purchase is worth the risk. If yes, it may be worth exploring getting a seller’s concession.
Understand The Seller’s Disclosure
Perhaps one of the essential things before you close on a property is due diligence. While the home inspection is crucial, it is also wise to do your homework.
Investigating the neighborhood and surroundings is also an intelligent thing to do. There could be significant surprises lurking around the corner when you don’t do proper research.
The seller’s disclosure should help, but there could be things the seller is not required to disclose, like a sex offender nearby.
It will be your job to discover things that will make you uncomfortable. One of the best tips is to seek guidance from your buyer’s agent. They should be one of the resources you rely on.
Mortgage Preapproval is Key on Your Journey to a Closing
One of the most significant steps is getting your mortgage approved.
Your loan officer will request numerous necessary documents to get the underwriting process going for your loan.
Getting the requested documents back to the lender on time will be crucial.
You should have received a mortgage preapproval for your home loan from your chosen mortgage lender.
While getting pre-approved for the purchase price is always a good idea, it doesn’t guarantee that you are automatically approved for the mortgage you need to buy the home.
You still need final approval, which means providing personal information to your lender.
The mortgage lender will double-check your credit report to ensure you are a worthy home buyer. Having a good credit score is essential to get the best loan terms.
It will be essential to avoid big purchases before closing that could impact the terms of your loan before getting to the finish line.
Ringing up significant charges on your credit card will be a big mistake!
Your lender will want to ensure you have the income, assets, and insurance needed to qualify for the loan amount.
They will also want to see other financial documents, such as pay stubs, W-2 forms, bank statements, insurance forms, and a contract showing the purchase price with the seller.
In addition to this, other documents may be needed depending on your situation. Mortgage lenders could also ask for bankruptcy forms, child support, and alimony papers. They are looking for proof you have the resources to afford the purchase.
Affording The Home is a Must
During the process, your lender will dig into your finances to ensure you can afford the property you want. Lenders encourage buyers to take loans with them by making it seem like they’ll get more. But overextending your finances like this has many risks.
If you fall in love with a home you can’t afford, you could find yourself stuck paying a mortgage with an uncompetitive interest rate for 30 years. Not having the best mortgage rate will cost you thousands more in interest and keep you paying back lenders longer than necessary.
But if you have a home you can afford with a 15-year fixed-rate loan, you’ll pay off the mortgage much sooner and at a significantly lower cost.
To avoid this situation, get pre-approved instead of just prequalified. Mortgage preapproval is a more thorough look at your finances, showing you exactly your upper purchase limit.
Don’t begin your home search before you know exactly how much you can afford to spend unless you want to be disappointed.
Expect a Loan Estimate
A lender must provide a loan estimate within three business days of your mortgage application. All mortgages must include this disclosure.
The loan estimate will document the costs involved with the real estate transaction.
The Home Appraisal is a Big Hurdle
If you use a home loan to buy the property, your lender will likely need a real estate appraisal. The lender uses the assessment to ensure they aren’t lending more money to you than the home is worth.
If they do lend more than the home’s value, they put themselves at risk of losing out if they enter foreclosure.
The appraiser will visit the home, make notes, take photos, and then compare the property to similar house sales. They will then give an assessment of the market value of the home in a report. The mortgage lender will provide you with a copy.
If their finding is lower than the offer amount, the lender could refuse to lend money for the purchase. This is referred to as an appraisal gap.
Your mortgage lender will be the one who hires the appraiser, and you’ll pay their appraisal fee as part of the closing costs.
Appraisal Problems Can Impede The Sale
There is always the risk that the appraiser will find the home worth less than you have offered. They use comparable property sales to establish the home’s worth, which can sometimes be the root of the problem.
If you are buying in a hot market, it could be that prices are rising at such a pace that the comparables don’t reflect the current market.
Occasionally, a particular home has better and unique features not otherwise found in the area. However, a low appraisal is more likely to indicate that you have offered more for the home than you should have.
Whichever situation has caused a low appraisal, the lender will not loan you the money for the home. However, you can do a few things to change the situation if you still want to proceed with the purchase.
You can ask the seller to lower the price so that you can still buy.
It is possible to have a contingency in the contract that protects buyers from continuing when the appraisal is below the offer amount.
You can continue purchasing if you find additional down payment funds to make up the difference. Perhaps the seller will help by coming down a little to keep the sale on track.
If you go with this option, you add some additional risk to the purchase.
It could mean you must wait longer for the value to reach the amount you paid, perhaps meaning you can’t move out as soon as possible.
You can also challenge the findings of the appraiser. If you don’t agree with the decision or if something in the report was wrong, a new appraisal might get a better result. This is a risk, however, so ask for advice from your real estate agent.
The other option is to walk away from the deal. And this could be the best option if the appraisal doesn’t go your way, and it’s certainly the safest.
If you discover something wrong when you check the home, this could delay the finalization of your purchase.
Homeowners Insurance is Necessary
Homeowners’ insurance is a requirement by lenders when providing financing. The cost of this will be included as part of your monthly mortgage payment to the lender.
The lender will then keep this in an escrow account to pay it annually. This ensures that insurance payments aren’t missed, so the lender isn’t at risk should the residence be damaged or destroyed.
Your real estate agent might be able to direct you toward a good insurance agent to get the required coverage at the best price.
A Final Walkthrough is Essential Before Real Estate Closings
You should have the final walkthrough just before you close on a house. Your real estate agent should schedule this, which will often be the day before closing.
By this time, the seller’s possessions should be gone, and you will have the opportunity to check the home. This will be your last chance to ensure you buy the property in the condition you initially saw it.
The property should match what was agreed upon in the contract. Please ensure everything is as it should be, and test everything you can.
Check all functioning appliances, toilets, doors, windows, and light fittings. If something is wrong, your agent will alert the seller’s real estate agent to the problem.
How Long Does Closing on a House Take?
One of the most asked questions by home buyers is how long it takes to close a home.
The average time to finalize a home sale is 45 to 60 days. This is partly due to the checks and paperwork that must be completed to ensure everything is legal.
But problems hold up about a third of home sales, and nearly half of these are down to loan approval issues.
Even though most buyers will have gained preapproval for their mortgage, things can go wrong.
Often, this is the buyer’s fault, taking out more credit before closing. Taking on more debt changes their debt-to-income ratio and may mean they can no longer get the required mortgage.
While it would be better only to buy a home when you are debt-free, that isn’t always possible.
A loan between preapproval and closing will change your credit score and the lender’s calculation.
This will mean the lender has to alter their agreement and the mortgage terms with you. This might increase the interest you’ll have to pay on the loan or, worse, mean they won’t approve you.
Another reason for loan problems can be borrowers not being entirely truthful on their mortgage application.
If you have payment commitments, like child support, don’t forget to mention it to your lender.
They will find out eventually anyway, so there isn’t any advantage in making your debt-to-income ratio look better than it is to get pre-approved.
Possible Delays at Closing
There are a lot more things that can get between you and your new home. Stumbling blocks could appear at any stage to delay or even end your dream of owning the home. Things could even go wrong on the day of closing.
How Much Are Closing Costs on a Home?
Many buyers ask their real estate agent or mortgage broker what the closing costs on a house are.
The cost of passing on a property can vary based on several factors. The question of who pays closing costs on a home also comes up.
Both buyers and sellers have expenses in a real estate transaction.
The cost of closing on a house for buyers is certainly not insignificant. When you get to closing day, the bills you have to pay are usually substantial.
Fees will be due from the professionals who have worked on your transaction.
The home inspector, appraiser, attorney, lender, and more must be paid on the day.
You will also need to pay the first homeowner’s insurance premium, which can be around 3 or 4% of the price of the home.
For an average home costing $300,000, you are looking at possibly more than $10,000 to pay on closing.
Lenders will provide a breakdown of their costs at least three days before the passing.
This closing disclosure should be similar to their loan estimate, so compare the charges and check that the terms are what you expected.
Are the interest rate, monthly payments, and closing costs correct?
Remember that many mortgage lenders will require you to have an escrow agent hold your money in escrow to pay your property taxes.
Some mortgage companies will waive this requirement if you ask them.
What Are The Seller’s Closing Costs?
The costs for sellers can also vary from sale to sale. The highest expenses for sellers are a Realtor’s commission, tax stamps in some states, and attorney’s fees.
Depending on the home’s sale price, these fees can quickly add tens of thousands of dollars. Your real estate agent should be able to provide a net sheet that details these costs.
What Happens on The Day of Closing?
You will likely get an appointment at the title company’s office or the lender’s real estate attorney to complete the purchase. Typically, a few people will be there, including the attorneys, someone from the title company, a representative from the lender, and real estate agents who might also be present.
The seller may not be there, as they can sign the documents in advance.
You will have to prove your identity with a photo ID. You must also bring any documents the title company or the lender requires.
If closing costs aren’t part of the sales price, you will need a cashier’s or certified check. The agent will not accept a personal check. You may also choose to have a wire transfer of your funds.
Any costs outstanding from the disclosure must also be paid.
The home seller will sign the final documents to transfer the ownership. You will need to sign a settlement statement of the costs involved. There will also be a mortgage loan, deed of trust, and promissory note as part of the final loan documents to sign.
After everything is signed, the title company will ensure your name is registered as the new owner. The closing day on the property happens relatively quickly. You will usually complete the closing day process in under an hour.
It Helps to Have a Closing Checklist
Having a closing checklist can be helpful to look over so nothing is missed.
- Secure Financing: Obtain final loan approval from your lender.
- Title Search: Ensure the property title is clear of liens and disputes.
- Purchase Homeowners Insurance: Buy a policy to protect your new home.
- Schedule Home Inspection: Identify any issues before closing.
- Negotiate Repairs: Request the seller to fix identified problems from the inspection.
- Review Closing Disclosure: Compare with Loan Estimate for discrepancies.
- Conduct Final Walkthrough: Verify repairs and ensure the house’s condition.
- Gather Necessary Documents: Organize IDs, loan documents, and proof of insurance.
- Confirm Closing Costs: Know the exact amount you need at closing.
- Wire Transfer Funds: Arrange payment of closing costs before the closing date.
- Check Utilities: Ensure utilities are set to transfer to your name.
- Attend Closing Meeting: Sign all required documents to finalize the purchase.
- Receive Keys: Collect the keys to your new home.
How do Remote Home Closings Work?
Today, it is possible to have a remote closing on the home. With remote finishes, the parties do not gather in a room but instead close virtually. With a complete remote passing of papers, a video conferencing app like Zoom or Skype would be used.
Funds for the sale can be done electronically with remote passings.
Some states will allow remote deals, and others will not. You can check with a local real estate attorney to see if it is possible in your location.
New buyers find that doing a transaction this way is becoming more commonplace.
When Can You Move in After Closing?
It might be possible to move into your new home right after you have signed all the documents at your appointment. The date you can move in should have been agreed upon and added to the contract.
A rent-back agreement should be signed if the seller needs to stay in the home after the passing, and you have agreed to this. Then, you can only move in after that agreement ends and they have moved out.
Rent-back agreements are uncommon and are frowned upon by many real estate attorneys.
What Not to Do After Finalizing Your Home Sale
You’ll want to avoid making blatant mistakes after closing your home. Some of the more common things to avoid include the following:
- Not changing the locks
- Changing jobs when you’re not financially secure
- Over-improving the house
- Neglecting home maintenance
- Not keeping essential paperwork from your purchase
Noteworthy Statistics
1. Approximately 76% of homebuyers finalize their property purchase within 45 days of making an offer.
2. The average duration for completing the entire process is 33.5 days.
3. Around 89.4% of homebuyers finance their purchase through a mortgage.
4. The median down payment made by homebuyers is $42,500.
5. On average, buyers pay approximately $8,200 in costs, which includes fees and expenses associated with the transaction.
6. About 92% of home sellers agree to provide a one-year home warranty as part of the agreement.
7. Homebuyers spend an average of 2.5 hours signing documents.
8. In 82% of cases, closings are conducted in person at a lawyer’s office or title company.
9. On average, 27 documents need to be signed.
10. Approximately 95% of buyers work with a Realtor and loan officers to ensure a smooth transaction.
FAQs Homebuyers Ask
Here are some common questions and the answers.
Q: What Happens During a Closing Meeting?
Several necessary steps take place to finalize the purchase of a house. First, all parties gather at a designated location, including the buyer, seller, real estate agents, and attorneys.
The meeting begins with reviewing and signing various legal documents, such as the purchase agreement, loan documents, and title transfer forms. Next, the buyer presents the down payment and any additional costs required.
Once all financial matters are settled, the title company or attorney thoroughly examines the property’s title to ensure there are no liens or encumbrances. The sale is then recorded at the local registry of deeds. The timeline for completion is usually around an hour.
Q: How Much Money Do I Need to Close on a Property?
While the amount needed can vary depending on the purchase price and location, a general guideline suggests that homebuyers should budget around 2-5% of the total purchase price for closing costs. This typically includes expenses such as loan origination fees, appraisal fees, title insurance, attorney fees, and prepaid property taxes and insurance.
It is advisable to consult with a mortgage lender or real estate professional to get a more accurate estimate tailored to your specific situation.
Q: How Do You Handle Unexpected Issues During The Closing Process?
It is vital to remain calm and take the following steps to handle these situations effectively. First, communicate with your real estate agent and lender immediately to inform them about the issue.
They will guide you on the necessary actions to take.
Next, consult with a professional such as a real estate attorney or inspector who can provide expert advice on resolving the problem. If needed, negotiate with the seller to find a mutually beneficial solution.
Remember, unexpected issues are not uncommon in real estate transactions, and by staying proactive and seeking professional guidance, you can navigate through them successfully. From many years of experience, cooler heads always prevail.
Final Thoughts
The house process can seem complicated, but with the knowledge of what is meant to happen and the help of an experienced real estate agent, it shouldn’t be that tough.
Once you have gone through all the stages and paid all the bills, you and your family will have the keys to your new property. Congratulations – you have reached your goal!
Hopefully, you have found this guide helpful. It would help if you now have everything you need to know about home closings. If not, feel free to reach out with any unanswered questions.
About the Author: The above Real Estate information about closing on a home was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ years.
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