You have finally found the house of your dreams. The seller has accepted your offer, and you have paid your earnest money (deposit). Now is when the work begins as you move through the closing process to officially make that home yours. If you’ve never bought a house before, you might not know what to expect when closing on your home. Knowing what to expect beforehand will help prevent confusion and any unpleasant surprises during the closing process. Here’s the rundown.
Learn More: Home Buying 101
What Does Closing on a House Mean?
The term closing refers to the final step of a real estate transaction and the day you officially become the owner of your new home. A closing might also be referred to as a settlement. On the closing date, the ownership of the property being sold is transferred to the buyer. All parties involved with the home sale, including the buyer, seller, realtors, attorneys and title company representative meet at a predetermined location to sign all of the paperwork required to transfer ownership. This is also where you will provide your down payment along with any closing costs that you’ll be responsible for.
How Are Closing Dates Determined?
Your closing date is determined between you and the seller during contract negotiations. It needs to be entered on your purchase agreement contract. But this date isn’t set in stone. It could change based on how much time it will take for the title agency and your lender to complete the work they need to finish before the sale can be finalized. Delays up to a few weeks or sometimes months could happen if problems with financing or the title search occur. Your agent and the sellers will work with both to set a realistic timeline when needed.
Closing on Your Home
There is no time to rest while you wait for your closing day to arrive. You have a lot of work to get done and will need a team of professionals to help you. Your real estate agent can assist you by recommending professionals they know and trust if you don’t already have a team in place.
Team members you might need to include:
- Mortgage professional (if you have not yet pre-qualified for a mortgage)
- Escrow officer
- Home inspector
- Title insurance agent
- Real estate attorney
Your team of professionals will work with you to review your purchase contract and prepare your closing contingencies. A closing contingency is a condition that must be met before you can sign the final papers to make your home purchase legally binding.
Typical contingencies include any issues surrounding:
- Loan documents – You need to have documentation of your income, assets, divorce decree (if applicable) and purchase agreement.
- Homeowners insurance – Most lenders will require you to secure a homeowners insurance policy. This insurance protects you and the lender if your home is damaged or destroyed.
- Appraisal – Your mortgage lender will require that the house is appraised to make sure they aren’t lending you more money than it is worth.
- Home inspection – Buying a home is a significant investment. Hiring a home inspector can prevent you from making a bad investment if you were to buy a house with hidden damage or potential problems.
- Final walk through before closing – This walk through happens just before the closing. You and your realtor will check that the condition of the home is acceptable to what has been agreed to in the purchase contract.
Learn More: 6 Tips for First Time Homebuyers
Problems that Could Delay Your Closing
The average closing process, barring any issues, takes about 41 days. But almost a third of all closings run into one or more problems that could cause the date to be delayed.
Self-Sabotaging Your Mortgage Approval After Pre-Approval
The most common problem is the buyer runs into a financing issue. Purchasing a new car, maxing out credit cards or buying furniture and appliances for your new home on credit will hurt your credit score. Even if you sailed through the pre-approval process, your credit score would be rechecked before any lender will give their final approval for your mortgage. Changes in your credit score could cause your mortgage approval to be sent back to be reworked. This all means more paperwork and delays as your mortgage agreement is adjusted.
Learn More: Mistakes People Make When Buying a House
When you apply for a mortgage, your finances are put under a microscope. It is always a good idea to get pre-approved for a mortgage to know how much the lender is willing to loan you before you house shop. This will help keep your home search in line with what you can realistically afford for a mortgage payment instead of signing a purchase agreement for a home that you cannot afford or get a loan for. Your mortgage approval could also be delayed if you fail to disclose all your payment obligations to your lender. For example, if you forget to tell your lender that you pay child support, this could cause a delay in processing as your debt-to-income ratio is re-evaluated.
Appraisal Comes in Too Low
If the lender’s appraisal comes back lower than expected, they won’t approve your mortgage for anything above that amount. The assessment is based on comparable sales in the area. When you’re closing on your home and the process comes to a halt because of a low appraisal, here are your options:
- Request that the seller lower their price
- Challenge the evaluation
- Request a new appraisal
- Cancel your contract
- Consider negotiating middle ground with the seller and paying a portion out-of-pocket
- Home Inspection Problems
Your home inspector will look for problems with the home. Major issues like mold damage, termite infestation, electrical problems or cracked foundations are expensive to repair. This will delay your closing process if you decide to renegotiate your purchase contract if you choose to continue with the purchase.
Learn More: 5 Places to Inspect Your Home
Problems Discovered During Walk Through
Delays with closing on your home could happen if you find new damage or appliances missing that were included in your purchase contract. Your purchase contract might need to be adjusted, which would require most of the closing papers to be modified, too.
Problems with Closing Paperwork
Come closing day you will have between 50-100 pages of paperwork to read through and sign. Don’t be tempted to skip through and just sign off where required. Take the time to read through and ask questions if you don’t understand something or something is incorrect. This will protect you and your family, and save you a much bigger hassle later on.
What Are Closing Costs?
You will have to pay closing costs that are not included in your mortgage loan. These are charges from third-parties that are involved in the closing of your new home. You can get an idea of your closing costs by calculating what 3-4 percent of the purchase price of your home is. Costs for closing usually include:
- Charges for running a credit report
- Home inspector bill
- Appraisal fee
- Homeowners insurance premium
- Attorney costs
- Property taxes
- Preparing for Closing Costs
- HOA transfer fees
- Government fees
Some of your closing costs, like the home inspection, are paid before closing day. But the remaining are spent on the day of your closing. Your mortgage lender is required to send you a “Closing Disclosure” at least three business days before you close on your home. This disclosure lists the final terms of your mortgage, including all closing costs and who pays what and to whom at the closing. Make sure you carefully review all costs and compare them to your original loan estimate. Review the calculation for your monthly mortgage payment and make sure that you can actually afford it. If you have questions about why any amounts have changed, contact your lender.
Learn More: Buying, Selling, and Your Taxes
When Closing Day Finally Arrives
Once the closing day has been confirmed, you might breathe a sigh a relief, but there is still some work to be done to make sure your closing goes as smooth as possible.
What Do You Bring to the Closing?
Your mortgage loan officer and title company representative should provide you with a checklist of what you’ll need to bring to the closing:
- Photo identification
- Any additional documents required by the lender or title company
- Cashier’s or certified check payable to the closing or title company for remaining closing costs
- Checkbook for smaller fees that need to be paid that are not paid to closing or title company
Where Will Closing Be Held?
You will be notified of the location where the closing will be held, and the time it will occur. Most closings occur at the escrow or title company’s office but sometimes happen at an attorney’s office.
Who Will Attend the Closing?
When closing on your home, there will be several attendees at the final meeting, including:
- You, the buyer
- The seller, unless they pre-signed the deed and transfer documents
- Mortgage lender representative
- Real estate agents for buyer and seller
- The closing/escrow agent
- Title company representative
What Will Happen at Closing?
Several things will happen when closing on your home before it officially becomes yours. You’ll pay your remaining closing costs. If not previously done, the seller will sign the papers that will officially transfer the ownership of their home to you. Then, you’ll read through and sign multiple documents, including a:
- Settlement statement
- Mortgage Note
- Mortgage or deed of trust
- New deed, registered under your name by the title company
Once everything has been signed, and you have been handed the keys to your new home, you can usually move into your home right away. Your move-in date is usually already written into your purchase contract. An exception to moving in immediately could be if you agreed to allow the seller to stay in the house for an amount of time after the closing, which would be written in your contract.
Closing on your home can be stressful and a little confusing if you’ve never gone through the process before. Make sure you go in prepared, with an understanding of what to expect. Take a deep breath, and don’t be afraid to ask questions and look over everything thoroughly. You’re almost there!