Closing on a house marks the beginning of a new chapter, but the final step before becoming a homeowner includes lots of documents, signatures and fees. Here’s a closer look at the home closing process and how long it will take to make those keys yours.
- 1. Hire a real estate lawyer
- 2. Open an escrow account
- 3. Run a title search
- 4. Get a home inspection
- 5. Negotiate your closing costs
- 6. Remove contingencies from the purchase agreement
- 7. Confirm your closing date
- 8. Do a final walk-through
- 9. Attend the closing and pay the fees
- 10. Understand your closing documents
- 11. Get your keys
- Frequently asked questions about the closing process
- How long does it take to close on a house?
- How much does it cost to close on a house?
- Who is present at the closing?
- When is it too late to back out of buying a home?
- Learn more:
1. Hire a real estate lawyer
Buying a house isn’t just a transaction between the buyer and seller. It’s also a relatively complex legal process. To help you navigate the process, you may benefit from hiring a real estate attorney who can ensure the closing goes smoothly. This is usually optional, but having a lawyer on your side can help you avoid unexpected issues down the line.
2. Open an escrow account
Most homebuyers open an escrow account during the start of the closing process, which is typically managed by the title company. This account holds all the money associated with the sale, like an earnest money deposit, before you officially close on the house. When closing ends, the mortgage provider distributes the funds to the seller and buyer respectively, ensuring a secure transaction.
3. Run a title search
Run a title search on the property you are purchasing early in the closing process. A title search will bring up any issues with the title, such as an existing lien or unpaid property taxes, which could jeopardize your legal right to buy and live in the home. Also consider buying title insurance during this time, which would cover the cost of title claims during your ownership.
4. Get a home inspection
Getting a home inspection is an important part of closing. Even the most beautiful houses can have hidden issues.
During a home inspection, a contractor or professional inspector will check the home for major issues, like foundation cracks, leaks, problems with the plumbing or electrical system, and potential safety hazards. Depending on the results of the inspection, you might decide to back out of the deal or you can ask the seller to fix the issues as a contingency of the sale.
5. Negotiate your closing costs
Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo or townhome. You can expect to pay 2-5 percent of the mortgage loan in closing costs. These can include:
- Origination fee
- Underwriting fee
- Appraisal fee
- Credit report fee
- Title search fee
- Recording fee
- Transfer taxes
Although closing costs can be expensive, some costs are negotiable. See if your lender is willing to lower the origination fee or waive an application fee. If lender’s title insurance is required, ask your mortgage company if you can shop around to find the best rate rather than paying a fixed fee from the insurance company of their choice.
6. Remove contingencies from the purchase agreement
If you added any contingencies to the purchase agreement, now is the time to remove them. This includes things like a home inspection, pest inspection, and repairs made by the seller. As long as you are satisfied with the home in its current condition, you can move forward with the closing process.
7. Confirm your closing date
The next step is to confirm your closing date. This is the date when the seller will be fully moved out of the home, and you will be able to move into the home. Keep in mind that the closing date is usually at least one month after the purchase offer has been accepted. It can take even longer if you run into unexpected hurdles during the closing process. Once you have confirmed the closing date, you can officially start packing your things.
8. Do a final walk-through
Even if your initial home inspection went smoothly, it’s still a good idea to do a final walk-through right before you move into the new house. It is always possible that damage could have occurred between the first inspection and your move in date. During the final walk-through, make sure the seller made all the necessary repairs and removed everything that was not included in the purchase agreement from the house and the property.
9. Attend the closing and pay the fees
At the closing, you will have two primary responsibilities:
- Sign legal documents: This process falls into two categories: the agreement between you and your lender regarding the terms and conditions of the mortgage, and the agreement between you and the seller transferring ownership of the property. Be sure to read all documents carefully before signing them. Do not sign forms with blank lines or spaces.
- Pay closing costs and escrow items: There are a number of fees associated with getting a mortgage and transferring property ownership, including property taxes, utilities and HOA fees. The funds are usually a certified check or cashier’s check made out to the escrow company or a wire transfer of funds to the banking institution. Personal checks are often not allowed.
Find out what type of identification is required before you arrive. Usually, only one type of identification is needed, though some companies require two. Government-issued identification, such as a driver’s license or passports, is normally accepted. If there are two or more borrowers buying the home, every borrower should be present for the closing.
10. Understand your closing documents
At the closing, you will receive a number of important documents to sign. It could be upwards of 100 pages, so make sure to ask your real estate attorney or realtor to explain what each document is for. Here are some of the documents you can expect to receive:
- Loan estimate: This document contains important information about your loan, including terms, interest rate and closing costs. Make sure all the information is correct, including the spelling of your name.
- Closing disclosure: Like the loan estimate, the closing disclosure outlines details of your mortgage. You should receive this form at least three days before closing. This window of time gives you a chance to compare what’s on the loan estimate to the closing disclosure.
- Initial escrow statement: This form contains any payments the lender will pay from your escrow account during the first year of your mortgage. These charges include taxes and insurance.
- Mortgage note: This document states your promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if you fail to make payments.
- Mortgage or deed of trust: This document secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.
- Certificate of occupancy: If you are buying a newly constructed house, you need this legal document to move in. Ask for a copy of the title policy and survey, as well.
11. Get your keys
The final step of the closing process is the most rewarding: getting your keys. All of the legal work is done at this point. However, the smaller, logistical steps are still important to finish. For example, make sure all of your closing documents are organized and stored in a safe place. Review your home insurance policy so you know what is and isn’t covered if you have a claim. If you opted to purchase a home warranty, keep that paperwork handy, as well.
Frequently asked questions about the closing process
How long does it take to close on a house?
The average time to close is 47 days for a home purchase and 44 days for refinancing, according to Ellie Mae data as of May 2020.
Applying for a mortgage preapproval before you start shopping for a home can help you close sooner because a few of the verification processes will be completed ahead of time.
How much does it cost to close on a house?
Closing costs are typically 2 to 5 percent of the loan amount. They are typically thousands of dollars and can vary widely by state. For example, the average closing costs (excluding taxes) in Arkansas in 2020 were $2,071, while the average in New York was $6,301, according to ClosingCorp data. Nationally, the average closing costs in 2020 were $3,836 excluding taxes, and $6,837 with taxes.
Closing costs can also vary depending on the purchase price of the home and how it’s being financed.
Closing costs can be rolled into the mortgage amount (known as a no-closing cost mortgage) or paid upfront to avoid paying additional interest.
Who is present at the closing?
Closing on a home is often done in steps and on different days. All parties do not have to be present, but the following parties may be present:
- Closing agent, who might work for the lender or the title company
- Attorney (The closing agent might be an attorney representing you or the lender. Both sides may have attorneys. It’s always a good idea to have an attorney present who represents you and only your interests.)
- Title company representative, who provides written evidence of the ownership of the property
- Home seller
- Seller’s real estate agent
- You, also known as the mortgagor
- Lender, also known as the mortgagee
The closing agent conducts the settlement meeting and makes sure that all documents are signed and recorded and that closing fees and escrow payments are paid and properly distributed.
When is it too late to back out of buying a home?
Technically, it’s never too late to back out of buying a home, unless your name is on the title. However, backing out of the sale is much easier when you do it early. Typically, there is no penalty for getting out of a sale before your purchase offer is accepted. You can kindly let the seller know that you changed your mind.
Once the purchase agreement is signed, however, you could lose your earnest money deposit if you decide to back out of the sale. This is usually a deposit that is 1 to 3 percent of the sale price. The only exception is when the agreement has a contingency that would allow you to back out with no monetary loss.