In Closing: How to Seal the Home Buying Deal
Sign that paperwork. Write those checks. Get those keys!
The closing. It all comes down to this. The grand finale. Once you have the keys, the house is yours. (Cue: Air horn sound!)
Nice work getting this far. You’re almost a homeowner! Let’s run through some questions you may have as you cross the finish line.
What Does “Closing” Mean?
The close or settlement is when you sign the final ownership and insurance paperwork and get the keys to your new home.
The closing process technically begins when you’ve signed a purchase and sale agreement. That agreement should specify a closing date. From the signing date to the closing date typically takes four to six weeks. During this time, purchasing funds are held in escrow, where your money is safe until the deal is officially done.
What’s a Closing Disclosure?
Lenders must provide borrowers with a closing disclosure, or CD, at least three days before settlement. This form is a statement of your final loan terms and closing costs.
You have three days to review the CD. compare it to the loan estimate you received shortly after you applied for the loan. If you need a refresher on loan estimates, you can view a sample version here.
The point of this formal review process is to ensure there are no surprises at the closing table. If there’s a significant discrepancy between the loan estimate and the CD, notify your lender and title company immediately. Depending on what the underlying issue is, the closing has to stop and a new closing disclosure must be sent out with a new three-day review period.
The LE includes a couple of items that can’t change by the time you get the CD — namely interest rate and lender fees. Some items can change by only 10% (fees paid to local government to record the mortgage might be one). Others can change without limit, like prepaid interest, because it can’t be predicted at the start of the loan process
When Will the Final Walk-Through Happen?
Most real estate sale contracts allow the buyer to walk through the home within 24 hours of settlement to check the property’s condition. During this final inspection, which usually takes about an hour, you and your agent will make sure any repair work the seller agreed to make has been completed.
During the walk-through, you’ll also double-check that everything in the house is in good working order. Be sure to:
- Run water in all the faucets and check for leaks under sinks
- Test appliances
- Check the garage door opener
- Flush toilets
- Open and close all doors
- Run the garbage disposal and exhaust fans
If the home is in good shape — woo-hoo! Your next stop is the closing table.
If anything is amiss, your agent will contact the listing agent and, in most cases, negotiate to get the seller to compensate you at closing — typically in the form of a personal check — for the costs of fixing the problems yourself.
Worst-case scenario: You have to delay closing to resolve problems. If that unlikely event happens, your agent will help you address the issue.
Who’s Invited to the Closing?
Certain people will be there. Who, exactly, depends on your state. Typically, you’ll be joined by:
- Your agent
- The seller
- The seller’s agent
- A title company representative
- Your loan officer
- Any real estate attorneys involved in the transaction
The closing usually takes place at the title company, attorney’s office, or the buyer’s or seller’s agent’s real estate office. FYI: Some states, like California, don’t require an in-person, sit-down closing, because they’ve enacted legislation that allows for electronic closings with remote notaries.
Nonetheless, as the home buyer, you’ll have to sign what might seem like a mountain of paperwork — including the deed of trust, promissory note (promising the lender you’ll pay back the loan), and other documents. That cramp in your wrist will be worth it once everything is done.
How Much Will I Pay for Closing Costs?
If you’ve heard people vent frustration with the process of buying a home, you’ve likely heard complaints about unexpected costs at closing. Let’s unpack what you should expect so you’re not surprised, too.
Closing costs can vary widely by location and your home’s purchase price. Costs are split between you and the seller, but as the buyer, you’ll cover the lion’s share. You can generally expect your closing costs to be 3% to 4% of the home’s sales price. So, on a $300,000 home, you can pay anywhere from $9,000 to $12,000 in closing costs. (Meanwhile, the seller typically pays closing costs of 1% to 3% of the sales price.)
You can try to predict closing costs with calculators like Nerdwallets, which lets you plug in your mortgage details to get a rough estimate of what your costs will be.
Closing fees often include (but are not limited to):
- Commission for the buyer’s agent and seller’s agent
- A loan application fee
- An origination fee, which lenders charge for processing your loan
- The appraisal fee
- A fee for pulling your credit report
- An underwriting fee, which covers the lender’s costs of researching whether to approve you for the loan
- A title search fee
- Property taxes, which are due within 60 days of the purchase
- A recording fee for filing a public land record with the courthouse
These fees are a bummer. The bright side: Almost all of them are one-time deals.
What Should I Bring? (Other than Champagne?)
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At the closing you should have:
- A government-issued photo ID
- A copy of the ratified sales contract
- A homeowners insurance certificate
- Proof of flood insurance if you’re buying a home in a flood zone
- A cashier’s check or proof of wire transfer, to cover the remainder of the down payment and your closing costs
Also, talk to your attorney about anything else you might need to bring depending on your state or personal circumstances (such as a separation or divorce decree, should your relationship status affect the closing).
*above article is curtesy of houselogic.
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