Buying a house is likely the biggest purchase you’ll ever make. The process of finalizing the purchase, called “closing,” can seem complicated with stacks of paperwork, various fees and several professionals involved. This guide breaks down the real estate closing process into clear, easy to understand steps, so you know what to expect.
What is a Real Estate Closing?
A real estate closing, also called a settlement, is the final step in the home buying process. It’s when you sign the legal documents and pay the remaining costs to officially purchase the property.
At the closing meeting, the seller transfers the ownership, or title, of the home to you. In return, you provide the seller with the remaining amount owed after your down payment and closing costs.
Closings usually happen 30-45 days after your offer is accepted, depending on the type of financing you use. If you pay all cash with no mortgage, it can close much faster.
Who’s Involved in a Real Estate Closing?
Several professionals work together to finalize the mountains of paperwork required to complete your purchase:
- You and the seller: The main parties to the transaction. You’ll both review and sign documents during closing.
- Real estate agents: Represent you and the seller during negotiations and closings. They ensure correct information is provided by their clients.
- Loan officer: Works for your lender to manage the mortgage process and attend closing to oversee signing.
- Closing/settlement agent: Coordinates and runs the closing meeting. They work for either the title company or lender.
- Attorneys (optional): Represent buyers and sellers separately. They review documents to ensure clients’ interests are protected.
- Title company representative: Arranges title search and insurance to verify ownership and protect you from claims.
The Step-by-Step Home Buying Closing Process
Now let’s explore the closing process in detail, from offer acceptance to getting the keys.
1. Your Offer is Accepted
First, the seller must formally accept your purchase offer in writing. This contract outlines price, closing date, contingencies and more key terms.
The buyer then deposits “earnest money,” typically 1-5% of the purchase price, into an escrow account. It shows the buyer’s good faith while contingencies are removed.
2. Secure Financing
If you are financing a mortgage, you must formally apply and get approval from a lender. This pre-approval process should start before even house hunting. Provide all required documents, like tax returns, pay stubs and bank statements.
You’ll receive a Loan Estimate from the lender outlining specifics like the loan amount, interest rate, monthly payments and closing costs.
3. Contingency Period
Most offers have contingencies that give the buyer an “out” if certain criteria aren’t met, like:
- Home inspections are not revealing major issues
- Being approved for a mortgage
- Appraisal equaling the offer price
You can negotiate repairs or prices based on inspection results. Lenders require repairs before closing.
4. Title Search
The title company will search public records to verify the seller owns the home and identify any claims against the property that must be settled before closing.
Title insurance is required to protect against undiscovered problems. It’s paid for at closing and lasts as long as you or your heirs own the home.
5. Underwriting and Appraisal
The lender thoroughly reviews your application through underwriting to confirm you qualify for the mortgage. They verify income, assets, credit and more.
An appraisal is also required to confirm the home’s value matches the loan amount. If not, you’ll have to pay the difference or renegotiate with the seller.
6. Final Walkthrough
Just before closing, you and your agent will visit the property one last time to ensure:
- It’s in the same condition as when first viewed
- Repairs were completed as promised
- Everything included in the sales contract is still on site
If issues come up, notify your agent immediately to address them before closing.
7. Closing Meeting
This final step in the home buying process can take 1-2 hours. The closing agent ensures all parties review and sign the closing documents to transfer ownership.
Bring a valid ID, certified checks for closing costs and down payment, and proof of homeowner’s insurance. The final sales price balance is also due.
Once everything is signed and filed with the county, you’ll get the keys!
What Fees Are Involved in Closing Costs?
While each transaction’s costs vary, buyers can expect to pay about 2-5% of the home price in closing fees. Here are the main expenses:
Lender fees – Points, application, origination and processing fees
Title charges – Insurance, search fees
Taxes – State/local transfer taxes
Escrows – Homeowners insurance, property taxes
Commissions – For real estate agents
Legal fees – If attorneys are involved
Recording charges – To file deed with county
Your lender must provide a detailed Closing Disclosure three days before closing. Review all charges carefully.
The closing process can feel overwhelming to home buyers with its stacks of paperwork jam packed with unfamiliar legal and real estate jargon. Hopefully this guide has broken down each step into clear, understandable phases so you know what to expect.
While coordinating with various professionals on top of your regular responsibilities can be stressful, the payoff of owning your own home makes it worthwhile.
The keys to closing success are being organized, proactive and not hesitating to ask questions every step of the way. Lean on your knowledgeable real estate agent and lender contacts to ensure seamless execution.
Before you know it, the deal will be sealed, and you’ll have the keys to your new house! Enjoy setting up your new space and making lasting memories there for years to come.
FAQs About the Home Buying Closing Process
Below are answers to common questions home buyers have about real estate closings:
How long before closing should I apply for a mortgage?
Ideally, get preapproved before making an offer so you know what you can afford. The approval process itself takes at least 30 days. Applying too late risks not closing on time.
What happens if the appraisal is low?
You can pay the difference in cash or renegotiate the price with the seller. Otherwise, the lender won’t finance the full amount. Consider covering the gap so you don’t lose the home.
Can I change mortgage lenders during closing?
Yes, but it will likely delay closing for at least a few weeks, which could cause you to lose the home. Stick with your original lender, if possible. Shop for lenders when first applying.
What documents do I need to bring to closing?
Bring a valid photo ID, certified checks or wire transfer confirmations for your down payment and closing costs, and proof of homeowners insurance. Your closing agent will provide a detailed list.
Why is title insurance important at closing?
It protects your ownership interest for as long as you or your heirs own the home. It covers legal fees to resolve claims against ownership due to problems like fraud or clerical errors.
How can I reduce my closing costs?
A few options: negotiate with sellers to pay some fees, shop lenders for lower origination charges, opt for lower title insurance, and beware of junk fees. Also, consider a lower down payment program like FHA if eligible.
In another related article, Essential Tips for Home Buying: Your Guide to Buying Real Estate