The phrase "closing on a home" has a beautiful ring to it, doesn't it?
After all that time spent saving, budgeting, and signing documents, the end is in sight. That dream home is close to being yours.
But there's still a lot to consider for a smooth home closing process. In fact, it can be a very stressful experience.
In this article, I'll cover exactly what happens at a home closing.
What exactly is a home closing?
Let's start at the beginning. This is a big deal when it comes to the process of buying a home, and one you may be unfamiliar with.
In simple terms, home closing is the last chapter of this long home buying process.
This is where you sign off on the deal and transfer the last of the funds. At the end of closing, the deed will be recorded, and the home will be yours.
The closing is handled by a neutral third party closing agent. This may be a title company or a real estate attorney (more on this below).
At closing, significant events include:
- A home's title are transferred from seller to buyer
- The proceeds of the sale are distributed to the seller
- If the home is financed, the buyers sign the mortgage note
The buyer and/or seller pay other fees, too. This may include real estate commissions, title insurance, and pro-rated property taxes.
What documents do you need for a successful home closing process?
As a home buyer, your agent and loan officer should provide plenty of direction on what to bring to closing.
In most cases, you'll need:
- A large check. A cashier's (not personal) check for the total amount due on the HUD-1 Settlement statement (more on this below). This includes your down payment and closing costs.
- Your checkbook. You'll want to be able to cover any last minute changes (although the best case scenario is that there won't be any last minute changes). You may also need to cut the seller a check for items that aren't included in the settlement. One example is any heating oil left in the tank. This will vary from property to property.
- Your full attention. There are a lot of intimidating legal documents to sign at closing, and it's crucial not to glaze over them. Take the time to read before you sign. Don't be afraid to ask for clarification if there's anything you don't understand.
A home closing involves loads of paperwork, too. This includes the deed, which grants legal rights to the property. It's signed by the seller and given to the buyer. The deed will then be registered with the city or county to protect the ownership rights of the new owner.
At this point in the process, you should have a collection of documents from lenders and other parties.
Make sure that they're all up-to-date, signed, and easy to access on the big day. Other key pieces of documentation include the following:
- All documents relating to loans and mortgages. This provides explicit details on the financial situation. It will also put everyone on the same page.
- Bidding negotiations and other documents about the asking price. Again, this helps to clarify where everyone stands on the current offer.
- Home inspection reports. Sometimes, the bidding negotiations will show that there is required work on the property. In this case, you need documentation to back up the claims. These reports should provide precise details on problems and quotes.
It's also essential to have valid identification with you. You might not think this is necessary so far into the process, but it best to have it on hand to be safe. A valid passport or driver's license should suffice here.
Keys are also given by the seller to the buyer at closing (or sometimes shortly after).
Finally, the seller will get a check for the net proceeds of the transaction. This is the sales price minus closing costs and what they owe on their original loan, if anything.
Who is involved in the home closing process?
You might be surprised at the sea of faces that greet you as you handle the closing process. If you thought this was a simple handshake and signature with the seller, think again.
In almost all cases, you will have a representative on hand from your lender, as well as the closing agent.
From there, the list may grow depending on the circumstances of the sale. Some closing agents will bring an official notary with them to handle the documents. But you don't need to worry too much about them.
Some lenders may send an attorney on their behalf, as well. This a big reason to contact your lender and complete any details before the big day.
The seller is one individual who won't be in the room for this process. There are always exceptions to the rule, but most will handle their own documents and details. This might actually be preferable, as it may help to smooth out the process.
How much will closing on a house cost you?
An average of over $13,000
USA Today ran a story in 2018 detailing the average costs of closing on a home in the US And the figures aren't for the faint-hearted.
They report an average of $13,357 for homes with a median value of $210,200 and $4,985 for important home preparation projects.* This means yet another expense to budget for.
At this point in the home buying process, a few extra thousand might not seem like a lot. But, this is still an important figure to keep in mind and prepare for.
You won't know your final cost until the last minute
Also, consider the fact that you don't know exactly how much the final total will be until closing. We had to ballpark ours, and it was much higher than we anticipated. We had the money in the bank, so it was OK, but it may be wise to round your estimations up a little.
Where to find a summary of costs
You'll find all the details of the financial transactions at closing on the HUD-1. And as a buyer or seller, it's important to review the HUD-1 document before closing.
The HUD-1 shows, line by line, each expense as well as who is to pay what amount. So, it's helpful to review it in detail, so you know what you're expected to pay at closing.
Often as a buyer, you'll have to pay your share of closing costs and escrow fees at closing. So you will need to bring a cashier's check with you for the balance of what you owe for closing costs, as stated in the HUD-1.
As a seller, you may have to pay for some of the closing costs and escrow fees, as well as paying for items such as:
- Real estate commissions
- A year of a home warranty for the buyer (depends on your state)
- A title insurance policy for the buyer (in some cases)
Some items are pro-rated, or split between the buyer and seller according to the length of use, at closing.
Taxes, insurance, and homeowner's association fees are the most often pro-rated items.
A quick note: Careful of closing scams
It also might be worth your while to read a recent warning from CNBC on wire fraud schemes. People are tricking buyers into doing wire transfers, posing as real estate agents. This is one of the many reasons why you should negotiate all the costs in person and stick to using a cashier's check.
Needless to say, it's important to pay attention at closing. Especially considering the fact you'll be anxious to complete the transaction.
How long will a home closing take?
While I wish I could give you a straightforward time frame here, your guess may be as good as mine. Many processes and variables occur during the closing process. Because of this, closing could take much longer than you expected.
To give you some perspective, I'll share my most recent experience. From the time the final offer was signed to the time we closed on the home, it was about 30 days for us. The actual closing process took about 30 minutes.
There are many possible reasons for delays, though. From hidden fees and lost documents to hesitations from the other party, you never know. Think of it a bit like a tennis match between the buyer and seller. You might serve lots of aces and end the game pretty quickly, or there might be a bit of a rally back and forth.
One problem I've seen for homebuyers is their loan commitment or interest rate lock expiring. If the rate that you've locked in expires before closing, you may be stuck paying a higher interest rate. Or you may be scrambling to qualify again.
Your closing agent is there to make sure everything goes as planned before closing. They're also there to ensure the loan commitment doesn't expire before the close of escrow. Still, it behooves you to do your own double-checking, and to be sure you don't pay for anyone else's mistakes.
Buyers, sellers, and even real estate professionals get nervous about real estate closings. But they're part of the process of transferring your home from one person to another. Knowledge and preparation are essential for you to make your closing go as planned. So take time to read and follow the guide above.
The closing process all comes down to patience. You have come this far in the home buying process, and no doubt spent years planning and saving. A couple of extra weeks on closing won't seem so bad in the grand scheme of things.
* USA Today, https://www.usatoday.com/story/money/personalfinance/real-estate/2018/04/06/selling-your-house-closing-cost-home-preparation/487546002/, David Carrig, April 6, 2018.
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