Your Guide to Closing On a House

It usually takes 30 to 45 days to close on a home, from when your offer is accepted and you fill out a mortgage loan application to closing day when your purchase is finalized.

Buying a home is all about completing a lot of paperwork to protect all parties’ interests. Translated, that means you’ll spend lots of time executing and reviewing paperwork up to your closing day.

And you can expect the actual closing process to take one to two hours when you sit down to make that documentation official.

You’ll take several steps in advance, and it’s important to be diligent to avoid any hiccups or delays that could lengthen your efforts.

Every home transaction is different, and there are many additional details over and above what we’ve shared with you here, but this is a good place to start to get answers on the home closing process.

What Happens Before Closing Day

Your agent will walk you through the steps you and other parties will need to complete, as well as answer questions and ride herd on the overall process. Some of the key steps leading up to the closing date include:

• After you make an offer, the seller will have a short window to accept the framework of the purchase agreement. You will typically have an earnest money outlay, which is a downpayment to show the seller you’re serious about buying their home. It also protects the seller if you back out of the deal. The money is held in an escrow account until the deal is completed and applied to your down payment or closing costs.
• Conducting an optional property survey and buyer home inspection with the help of a licensed inspector.
• Start the loan origination process, including gathering comprehensive financial instruments to ensure your financial viability.
• The lender will conduct a home appraisal to confirm the home is worth what you want to pay for it.
• If everything checks out, the lender will approve funding your loan.
• After loan approval, you’ll need to buy homeowners and title insurance
• Complete sewer and water certifications, a termite inspection, and if required, a review of homeowners association agreements
• The escrow agent will provide you with closing disclosures in advance that spell out what you’ll need to pay on closing day.

You should be prepared to review a breakdown of closing costs, which are fees paid to your lender and other third parties to close on your loan. They are typically between 2-6% of the home’s purchase price and include several costs, like the appraisal, origination, title insurance, and application fees, among others. 

You may also have to pay mortgage insurance depending on the type of loan you get and how much you put down. Often, these fees are rolled into the overall mortgage and amortized over the loan term in addition to the home’s purchase price.

Part of the purchase agreement may involve lender credits to absorb your closing costs in exchange for paying a higher interest rate. That could be a good option for cash-strapped buyers who may not have enough money to pay closing costs.

However, a higher interest rate means you’ll pay more in interest over the life of the loan.

You’ll need to figure out how much cash to close. That’s the total amount of money you must bring on closing day.

Your downpayment is the bulk of this amount. However, you may not have a required down payment if you have a government-backed loan, like a USDA or VA loan.

If you’ve already paid your lender, such as an earnest money deposit, you may receive credits deducted from your cash to close. Also, you may be able to negotiate with the seller to get them to pay part or all of your closing costs.

If so, you may get additional cash to close credits as well.

Forms You’ll Review and Sign

The flood of documents you’ll sign at closing might appear intimidating if you’ve never gone through the process. Typically, you can expect to review and approve over two dozen documents to sign at a mortgage closing.

Some documents are routine and can quickly be dispensed, but others are critical, and you’ll want to make sure every part of them is completely accurate and understandable.

Federal law gives you the right to receive copies of all closing documents 24 hours before closing so you can review them to ensure everything’s in order. But many borrowers either don’t know this or fail to take advantage of it, putting their faith in the fact that everything will be accurate and in order.

Here are some of the most important documents you must review to protect your interests.

HUD-1 Settlement Statement

This is a detailed list of all transaction costs and which party pays. In most purchases, there are costs a seller typically pays and others that the buyer pays.

That will include several third-party fees, such as those for various types of insurance, taxes, and the real estate agent’s commission. Many of these are called in an advance Good Faith Estimate but you should double-check them to make sure they are pretty much the same, although some variances may occur. 

Truth in Lending Disclosure

This details all the terms of your mortgage, including the amount borrowed, interest rate, payback term, total interest to be paid over the life of the loan, and other essential loan information.

The Mortgage Agreement

Sometimes referred to as a Promissory Note, this is the formal agreement that includes a mortgage note stating the terms of the loan, transferring the money, and committing you to repay it. The other part of this document is the deed of trust that gives the lender the right to repossess the property if you don’t live up to the terms of the agreement.

Title Documents

A title company will conduct a title search to ensure the seller owns the right to the property and can legally sell you the home. The company also looks for existing liens so new owners are not surprised and inundated with legal problems due to the previous owner’s unpaid debts.

The Deed

This document transfers ownership of the property to you. It’s fairly simple, but you must review it closely to ensure everything is in order, from your names to a property description. It will be sent to you after it is recorded with your county of residence.

Seller’s Disclosure

The seller is legally required to notify a buyer of all the known defects of the property. This gives the buyer an accurate understanding of things that could ultimately influence whether or not to buy the property.

Disclosures can vary by state and may include flood zone and earthquake zone disclosures, a major repair history, water damage, foundation issues, pest infestations, or malfunctioning systems. Many of these things are revealed during a home inspection, which you should always ask for as part of the buying process.

Initial Escrow Statement

This details the estimated charges for insurance premiums, taxes, PMI, and anything else to be paid from your escrow account over the coming year. Most people keep a single escrow account that disburses funds to each of these entities, but it may be possible for you to pay some of these expenses separately outside of an escrow account for more control on your end.

Closing Disclosure

By law, your lender must send the Closing Disclosure at least three business days before closing day. This document details all of the important information about your loan, including:

• Loan term, loan amount, and interest rate
• Estimated monthly mortgage payment
• Closing costs, including origination, underwriting, and government fees
• Amount of money you’ll need to bring to closing
• Loan disclosures

If you discover errors or have questions about the content of any of these documents, contact your lender or real estate agent and insist on clarifications before closing. That may delay your closing, but getting all the terms and conditions right should not be overlooked.

What Happens On Closing Day

One or two days before your formal closing date, you and your realtor will do a final walkthrough of the home you’re buying. Use your contract as a checklist to ensure that nothing has changed and the seller has honored all the negotiated contingencies.

If something is amiss or you have questions, this is the time to inquire.

On closing day, you’ll need up to two hours to review and sign all the home purchase documents. Do not sign anything you do not understand. 

In some transactions, funding may be slightly delayed, but if both parties agree to a dry closing, you can complete all the closing documents with the understanding that disbursement of funds will happen after the closing instead of during it. 

However, they remain the property owner until the seller receives their funds. Buyers won’t legally own the property until funding the mortgage is complete.

Tips to Minimize Closing Delays and Ensure a Smooth Buying Process

Here are several things you can do to protect yourself and complete your home-buying process as quickly as possible. 

Choose an experienced real estate agent

An experienced and competent agent will help you find the home most suited to your budget and needs and be a key ally during escrow. They will proactively spot issues and be a valuable source of information as questions come up.

Get pre-approved

Before you get seriously into home shopping, choose a lender and get preapproved. This is a step beyond prequalified and just short of actual approval.

The lender will look at your credit and finances and provide you with an estimate of how much you can borrow. 

Preapproval shows a potential buyer that you’re serious about making a purchase. It also allows the lender to get your information and do much of the work in assembling the loan package ahead of time.

Get your documentation in order

Your lender and real estate agent will be able to tell you what paperwork you’ll need to get approved for the mortgage and for the home’s sale to be completed. It is substantial and will require a lot of work, so starting early is smart.

You must provide income documentation, bank, investment, and financial asset statements.

If you’re divorced, you may be asked to provide a copy of the settlement papers, and if you’re paying or receiving any child support, you’ll be asked to document that as well, regardless of your marital status. If you sold some investments to get money for the down payment and put the funds in your checking account, the lender will want to see the paper trail to ensure they aren’t also borrowed money.

It is better to be thorough, upfront, and honest early in the process instead of having any red flags popping up when you’re almost at closing. 

Respond immediately to information requests

Regardless of how thorough you are beforehand, most times, something will fall through the cracks, or a lender may have additional requirements you must meet. Don’t delay when these requests happen. Keep the flow going as quickly as you can to complete the process.

Be proactive with other parts of the transaction

Don’t wait for your lender or real estate agent to tell you to do something if you know it will need to be done. For example, start lining up homeowners insurance and a home inspector as soon as you put in an offer.

You won’t have to pay anything until closing, and this will give you added time to evaluate different vendors to see which has the best deal for you.

Now is the time to ensure you have all the cash needed for the transaction. If you need to sell some investments to raise money, do that well before the closing so there’s time for the transaction and for your lender to verify their source.

Avoid life changes that impact your finances

Issues can also arise when a buyer takes on other large debt, gets a new job, opens new credit accounts, or misses a payment. These can impact the terms of your loan or disqualify you from getting a mortgage.

Beware of problem homes

Some homebuyers will find a perfect home with the right price and in a good neighborhood but are stunned to learn their lender won’t approve the mortgage because of issues with the property. 

This may be due to problems with an outstanding lien or other issues found during a title search, but they can also be fundamental problems with the home itself. For example, a home may be nonconforming for the neighborhood where it’s located, making it difficult to appraise, or it may be overbuilt for the neighborhood, making it hard to sell later.

Lenders are also reluctant to approve mortgages for homes that may need significant repairs or that could be hard to sell in foreclosure. They’re much more comfortable backing loans on well-maintained homes that fit in with the rest of the neighborhood.

That’s not to say you can’t get a mortgage on a unique property, but you may need to go to a small, local lender and wait longer for approval.

Limit seller concessions

Seller concessions are those actions a seller agrees to do to close the sale. These often involve making specific repairs or improvements as part of the deal before the sale is closed.

Delays will occur if those things are not done promptly, and the more concessions there are, the more likely delays will occur.

A better strategy as a buyer is to ask for financial concessions instead. For example, ask for a $25,000 credit instead of asking the seller to put on a new roof.

Guard against mortgage scams

Watch for red flags before signing documents or transferring money. Mortgage wire fraud is a common scam that uses fake emails, phone numbers, or websites to impersonate your real estate agent or lender.

Communications may look authentic enough and contain your personal information, but sophisticated hackers could trick you into sending closing costs or a downpayment to a fraudulent account.

Be aware of last-minute changes or requests to act quickly. Don’t provide financial information or a social security number in an email, and always confirm the email address, phone number or contact information with those your agent or lender gave you.