Closing is the final step before getting the keys to your new home. Several parties come together to complete the real estate transaction between a seller and a buyer. Who attends closing depends on practices in your state, and sometimes varies by county. Most often those attending the final meeting will be:
- The closing agent who will work for either the lender or the title company.
- Attorneys that may be required to represent the lender and the buyer as well as the seller.
- A title representative who arranges title insurance.
- The buyer, the seller, the realtor and the lender may be present.
The closing agent will ensure all documents are signed and copied for both the buyer and the seller. The agent will also make sure all documents are properly recorded and that all fees and payments are distributed.
What is a closing?
A closing fulfills the sales contract between a buyer and a seller. A closing is also called a settlement, meaning that all contractual obligations between a buyer and a seller are settled. This includes any compensation due to your realtor, title company or lawyer. In short, anyone involved in the closing process that you must settle up with so that ownership of a home can be legally transferred.
Buying a home is a multi-step process that often takes 30 to 60 days before you’re ready to close. This closing meeting may take place at your title company, insurance company, your lender or your realtor's office. These steps must be completed before you can close on your home.
The steps to closing on a house using a mortgage
The steps leading up to the closing date include:
- Purchase agreement acceptance
- Optional buyer home inspection
- Loan origination
- Lender home appraisal and credit underwriting
- Loan Approval
- Homeowner and title insurance
- Closing disclosures
1. The seller accepts the purchase agreement
The purchase agreement must be signed by the seller and returned to the buyer’s realtor. This agreement lists any contingencies regarding the offer as well as the agreed closing date. Any "good faith" or earnest money provided by the buyer must be put into escrow by the seller. Once the mortgage paperwork is signed, the earnest money is released from escrow and may be used by the buyer who typically applies it to their down payment or closing costs.
2. The buyer sets up a home inspection
Once the purchase agreement is signed, you may choose to set up a professional home inspection. Your home inspection looks for any faults with the home you plan to buy. You should attend the inspection if possible.
3. Lender loan origination
Your lender will begin the loan origination process. You’ll need to fill out a mortgage application, review the Loan Estimate provided by the lender and let the lender know you intend to proceed with the transaction. You may also need to provide proof of income and assets including pay stubs, W-2s, tax returns, bank statements and investment information. You may also want to ask for a rate lock.
4. Lender home appraisal and credit underwriting
As part of their review process, your lender will order a home appraisal to make sure the home you’re looking to buy is worth the amount needed to support mortgage financing. Your loan cannot exceed a certain percentage of the appraised value of your home.
An underwriter is the person who reviews your loan application and decides whether or not your loan will be approved. This step can take time.
5. Loan approval
Once the underwriting process is complete, you’ll be notified that your loan has been approved. Bear in mind that your loan closing isn't complete until your lender has reviewed your file to make sure nothing has changed since it went through underwriting.
6. Homeowner and title insurance
You’ll need to provide proof of homeowners and title insurance. The costs may be worked into your closing costs.
- Homeowners insurance: Covers costs of repairing or rebuilding your home should it be damaged or destroyed. Homeowner insurance is often included in your monthly mortgage payment.
- Title insurance: Required by your lender to protect both the lender and the buyer against issues with the title. Title insurance is not required if you pay cash for a home.
Most lenders will require both homeowner and title insurance.
7. Closing disclosures
You’ll receive a notice of your closing time, date and location where the meeting will take place. Your lender will also provide a Closing Disclosure showing your final loan terms and closing costs. You’ll also get a list of what you must bring to closing. This usually includes your photo identification card or passport or other identifying information and a certified check or proof of wire transfer to cover closing costs.
If there’s an issue with the appraisal, credit, income or assets, it can delay your approval and push back your closing. Missing or late paperwork can also cause delays, as can buying a home during peak season when appraisers are booked.
The bottom line is to make sure your documentation is correct and that your paperwork is signed. Your lender will usually order an appraisal once the purchase contract is signed.
Meeting for closing day
About 24-48 hours before your formal closing date, you and your realtor will do a final walkthrough of the home you're buying. Bring your contract so you can make sure nothing has changed and that contingencies were honored. For example, if the contract says the appliances would remain, make sure they’re still there. If you have any lingering questions about closing, now's the time to ask. Your realtor will help you understand everything you need.
Congratulations, it's closing day! You’ll need about 2 hours to review and sign all of the necessary documents. Do not sign anything that you don’t understand or have not read. Always ask for clarification.
Closing costs on a house
Buyers usually pay about 6 percent in closing costs. These costs include fees for things like the title insurance and appraisal. Your mortgage loan fees like your recording, attorney and loan origination fees will also be included in your closing costs.
During and after closing
Your closing is complete after all financials are settled and you get the keys to the home. Buying a home is exciting, and you may want to start getting items for it before you close. Keep in mind that opening a new line of credit, or charging more to your existing credit, can lower your credit score. Closing any unused lines of credit can also damage your score by lowering the amount of credit available. Hold off on financing that living room set or kitchen appliance package until after you close.
Once you have the keys to your new home
Once all the paperwork is signed and the fees are paid, the house is yours. Here are a few things to do:
- First, update your address on your driver's license, your credit card accounts, human resource documents and any other document that requires updating.
- Change all the locks on the doors, make sure all the gutters are clean, locate all the gas valves and water shut-offs. These may seem like no-brainers, but it’s easy to overlook these things in the midst of moving.
- Get to know your neighborhood and neighbors. Connecting with those around you can help you and your family put down new roots.
Getting a mortgage is one of the greatest financial decisions of your life. There’s a lot to it, and it can take some time. Contact your Home Lending Advisor to help guide you through every step of your homebuying journey.