The Process of Closing on a Home Reviewed
When you buy a home for the first time, the process can seem like it's taking forever. There are many steps involved when you buy a home before it becomes your property. You still have to go through the closing on a house process before you get the keys and start preparing to move in.
We look at the things you should expect when you are about to go through a home closing. Maximum Real Estate Exposure has some great tips, and we will cover the basics here as well.
What is a Home Closing?
The final stage in the process for closing will see ownership legally transfer from the seller to you. On the day, there will be paperwork to sign, and you should get the keys.
Buyers and sellers often meet at a "closing table" to sign the final paperwork, although that is not always the case. Sometimes the parties will sign at different locations and different times. It is even possible to do a remote closing now where paperwork gets filed online.
How Long Does Closing Take?
Typically, you can expect homes to close in around 4 to 6 weeks though many things can affect this. For example, if you are paying cash, things can take less time.
It's likely that if you are a first-time buyer, you’ll be getting help from a mortgage lender. They need to run checks and make sure everything is correct before they will pay the money to the seller.
Despite everyone involved in the purchase process wanting the transaction to succeed, things do go wrong sometimes. There are many potential causes of delays during house closings, and these can include the following mentioned below.
What Are Potential Causes of Delayed Closing Times?
Should the inspector find serious issues with the home, it could be cause for you to renegotiate with the seller or even walk away from the deal.
Sometimes negotiating repairs or credits can take a couple of weeks, especially when contractors give estimates for work that needs to be completed.
If the appraiser concludes that the home is worth less than you have offered for it, the lender will not approve the loan. This might mean you need to find a larger down payment to make up the difference or go back to the seller, with the hope that they will agree to lower the price you pay.
Negotiations on appraisal issues could take some time as well to resolve.
Other problems could arise with your lender. If something has changed in your financial situation, like a drop in your credit score or a new loan application, you may no longer be eligible for the preapproval amount.
This could mean finding a new lender or a new home, so you need to be careful before getting final approval. It is vital not to do anything that could impact your loan after applying for a mortgage.
Checks need to be completed to show there isn't any problem with the title of the property you are buying. If a judgment or lien is found linked to the property, it could take a while to resolve.
One of the frustrating parts of finding a problem with the title is that it will be out of your control. You will be at the mercy of others to get the problem rectified in a timely fashion.
Real Estate Contingencies
To allow you to back out of a purchase agreement with your earnest money deposit returned, contingencies are added to the contract. But if these clauses have not been met, you can expect delays or even an end to the purchase agreement.
What Steps Need to be Completed During Closing?
Each step to closing on a house is important, with some of these steps down to you, and others completely out of your control. These steps include the following:
- Making an offer
- Agreeing and signing a purchase contract
- Paying an earnest money deposit
- Getting a home inspection
- Getting an appraisal
- Mortgage approval
- Getting homeowners insurance
- Final walkthrough
- Signing the legal paperwork
- Paying the closing costs
What Happens on Closing Day?
The representative from your mortgage lender should let you know all the things you need to bring with you on closing day. Many documents can often be provided digitally before the closing date, so reducing the things you need to bring.
You can expect to need to provide the following at closing:
- Photo id issued by the government.
- Documents relating to your purchase, including the contract, loan estimate, and closing disclosure.
- A cashier's check to cover the amount due or a receipt or a wire transfer.
What Needs to be Paid When Closing on a Home?
The costs that need to be paid at closing can amount to between 2% and 5% of the loan value. While this is a large amount of money, the exact fees you have to pay will depend on the type of loan you choose.
You can pay these fees out of pocket at closing, but some options help you save money on these fees. Let's take a look.
No closing costs
Some lenders offer mortgages without closing costs, which they will pay at closing. However, they don't do this for free and will apply a higher interest rate to your home loan. These types of loans can also sometimes be available when you are refinancing.
Increasing your loan balance
Your lender might agree to add closing costs on top of the home loan amount. This will save you from having to find the money out of pocket at closing, though you will be paying interest on this increased balance for the length of your loan.
In some cases, it might be possible to negotiate with your lender or the home seller to help you pay part or all of the closing costs. If they agree to pay, this won't be added to your mortgage.
What Fees are Included in Closing Costs?
Often, closing costs can include the following and more:
- Appraisal fee
- Credit check fee
- Loan origination and underwriting fees
- Attorney costs
- Title search fee
- Title insurance premium
There can be other expenses to find at closing as well. If your mortgage lender is paying the taxes and homeowners insurance premiums for your property, you will need an escrow account and the funds to cover these costs. These expenses are sometimes referred to as prepaids during the closing process.
What to Expect on Closing Day
There will be a large pile of paperwork for you to sign at closing. You need to check the things you are signing to make sure there aren't any obvious errors that could cause problems later on.
These documents are legally binding, so you have to be careful. You can take your time and read through each document to understand what you are signing.
The lender's attorney will be there to check your identity. They will most likely ask to take a photograph of your id documents.
When everything is in order, and the funds are available to purchase the property, the closing agent makes sure the money is correctly distributed.
Unless some other arrangement has been made, you'll get the keys at this stage. With the home buying process finally concluded, you are now the proud owner of your new home.
Now, all that is left to do is make sure the mover does their job, and you can start unpacking. Hopefully, you now have a much better understanding of the process of closing on a house.