Everything You Need to Know About Closing on a House
When you are preparing to close on a home, it can feel like you are near the end of the buying process. But when a house closing takes place, things don’t always go according to plan. Home closings can spring surprises on you that delay your move-in date or worse.
The steps to closing on a house can be an arduous process, but you will hopefully be sitting at the closing table with your dream home in the end.
The closing day of a house is a time to celebrate as you are taking a big step in your life.
A real estate closing is pretty straightforward but getting there may not be.
Let’s look at the things you need to be ready for when you close on a house.
What is The House Closing Process?
A real estate closing is when the property will become yours at last. On the day of closing, ownership will legally switch to you. It will be the final step in taking ownership of the property.
It will have been a while since you made your offer to the seller and paid the earnest money deposit. The initial purchase agreement you signed is probably a distant memory. You will have gone through negotiations where the house closing date would have been set.
The agreed-upon closing date should have considered the time needed for the lender, title company, and other professionals to do their work to make sure everything is correct and legal. This includes the title search checking the property title for any issues so title insurance can be issued. Having a clear title is a crucial aspect of any home purchase contract.
All of this can mean the day of closing is further away than you might have liked or imagined when you started your property search. But now, the home closing date is fast approaching, and you need to be ready for what will happen.
While closing is the last step, there are many things to do before the big day arrives.
Preparing to Close on a House
Though the end of the home buying process is insight, you shouldn’t relax just yet. There are still important things to do to make sure your house closing goes to plan; let’s review:
Getting The Right Help
The people you have working on your behalf could be the difference between things going smoothly or things going wrong with increased delays. If you have an experienced real estate agent on your team, they will understand the local market and know the best professionals to help you navigate the process.
Once the sales contract has been signed, your buyer’s agent can help you get in touch with experienced service providers, like home inspectors, attorneys, title companies, and more.
Creating a Real Estate Closing Checklist
Once you have found a team that you are happy with, you then need their help to get ready for the closing contingencies and make sure your contract is correct. There can be many contingencies in the contract that you and the seller need to deal with before the sale can close.
If you are unsure about any of the contingencies or the paperwork you are required to sign, check with your real estate agent before going further.
Common home buying contingencies you might have to deal with include:
The Home Inspection is Crucial
So that you don’t buy a home with faults that will lead to unforeseen expenses, a home inspection is vital. They should uncover hidden problems that will otherwise be your responsibility when closing is completed unless negotiated into the home sale.
There also could be some required repairs depending on the loan program you choose.
Mortgage Preapproval is Key
One of the most significant steps in the home closing process is getting your mortgage approved.
Your loan officer will request numerous necessary documents in order to get the underwriting process going for your loan. Getting the requested documents back to the lender in a timely manner will be crucial.
You should have received a mortgage preapproval for your home loan from your chosen mortgage lender. While getting preapproved for the purchase price is always a good idea, it doesn’t guarantee that you are automatically approved for the mortgage you need to buy the home.
You still need final approval, and this means providing personal information to your lender.
The mortgage lender will also double-check your credit report to ensure you are a worthy home buyer.
It will be essential to avoid big purchases before closing that could impact the terms of your loan before getting to the finish line. Ringing up significant charges on your credit card will be a big mistake!
Your lender will want to make sure you have the income, assets, and insurance needed to qualify for the loan. They will also want to see other financial documents such as pay stubs, W-2 forms, bank statements, insurance forms, along with a copy of the contract with the seller showing the purchase price.
As well as this, other documents may be needed depending on your situation. Mortgage lenders could also ask for things like bankruptcy forms, child support, and alimony papers.
Within 3 business days of your mortgage application, a lender is required to provide you with a loan estimate.
The loan estimate will document the costs involved with the real estate transaction.
The Home Appraisal is a Big Hurdle
If you are using a home loan to buy the property, your lender is very likely to need a real estate appraisal. The lender uses the appraisal to make sure they aren’t lending more money to you than the home is really worth. If they do lend more than the home’s value, they put themselves at risk of losing out if you enter foreclosure.
The appraiser will visit the home, make notes, take photos, and then compare the property to similar house sales. They will then give an assessment of the market value of the home in a report. If their finding is lower than the offer amount, the lender could refuse to lend money for the purchase.
Your mortgage lender will be the one who hires the appraiser, and you’ll pay their appraisal fee as part of the closing costs.
Homeowners Insurance is Necessary
Homeowners’ insurance is a requirement by lenders when providing financing. The cost of this will be included as part of your monthly mortgage payment to the lender. The lender will then keep this in an escrow account to pay it annually. This ensures that insurance payments aren’t missed so that there isn’t a risk for the lender should the house be badly damaged or destroyed.
Your real estate agent might be able to direct you towards a good insurance agent to get the required coverage at the best price.
A Final Walkthrough is Essential Before Real Estate Closings
Just before you close on a house, you should have the final walkthrough. Your real estate agent should schedule this, and it will often be on the day before closing. By this time, the seller’s possessions should be gone, and you will have the opportunity to check the home. This will be your last chance to ensure you are buying the property in the condition you originally saw it.
The property should match what was agreed in the contract. Make sure everything is as it should be, and test everything you can. Check appliances, toilets, doors, windows, and light fittings, are all functioning. If something is wrong, your agent will alert the seller’s real estate agent to the problem.
How Long Does Closing Take?
One of the most asked questions by home buyers is how long does closing on a house take.
The average time to close on a home is 45 to 60 days. The reason for this is partly thanks to the checks and paperwork that has to be completed to make sure everything is legal. But about a third of home sales are held up by problems, and nearly half of these are down to loan approval issues.
Even though most buyers will have gained preapproval for their mortgage, things can go wrong. Often this is the fault of the buyer, taking out more credit before they get to closing. Taking on more debt changes their debt to income ratio and may mean that they can no longer get the mortgage required.
While it would be better only to buy a home when you are debt-free, that isn’t always possible. Taking a loan between preapproval and closing will change your credit score and change the lender’s calculation.
This will mean the lender having to alter their agreement and the terms of the mortgage with you. This might increase the amount of interest you’ll have to pay on the loan or, worse still, mean they won’t approve you at all.
Another reason for loan problems can be borrowers not being entirely truthful on their mortgage application.
If you have payment commitments, like child support, don’t forget to mention it to your lender. They will find out eventually anyway, so there isn’t any advantage in making your debt to income ratio look better than it really is, just to get preapproved.
More Possible Delays at Closing
There are a lot more things that can get between you and your new home. Stumbling blocks could appear at any stage in the process to delay or even end your dream of owning the home. Things could even go wrong on the day of closing. Let’s look at the most likely problems:
Affording The Home is a Must
During closing, your lender will dig into your finances to make sure you can afford the property you want. Lenders like to encourage buyers to take loans with them by making it seem like they’ll get more. But overextending your finances like this has many risks.
If you fall in love with a home that you can’t really afford, you could find yourself stuck paying a mortgage with an uncompetitive interest rate for 30-years. This will cost you many thousands more in interest and keep you paying back lenders for longer than necessary. But if you have a home you can afford, with a 15-year fixed-rate loan, you’ll pay off the debt a lot sooner and at a significantly lower cost.
To avoid this situation, make sure you get preapproved instead of just prequalified. Mortgage preapproval is a more thorough look at your finances that will show you exactly what your upper purchase limit is. Don’t begin your home search before you know exactly how much you can afford to spend unless you want to be disappointed.
Appraisal Problems Can Happen
There is always the risk that the appraiser will find the home to be worth less than you have offered for it. They use comparable property sales to establish the home’s worth, which can sometimes be the root of the problem.
If you are buying in a hot market, it could be that prices are rising at such a pace that the comparables don’t reflect the current market. There are also occasions when a particular home has better and unique features not otherwise found in the area.
But a low appraisal is more likely to be an indication that you have offered more for the home than you should have.
Whichever situation has caused a low appraisal, the lender will not loan you the money for the home. However, you can do a few things to change the situation if you still want to proceed with the purchase.
You can ask the seller to lower the price so that you can still buy. It is possible to have a contingency in the contract that protects buyers from continuing when the appraisal is below the offer amount.
If you can find additional down payment funds to make up the difference, you can continue purchasing. Perhaps the seller will help by coming down a little to keep the sale on track.
Though if you do go with this option, you are adding some additional risk to the purchase. It could mean that you have to wait longer for the value to reach the amount you paid, perhaps meaning you can’t move out as soon.
You can also challenge the findings of the appraiser. If you really don’t agree with the decision or something in the report was wrong, a new appraisal might get a better result. This is a risk, however, so ask for advice from your real estate agent.
The other option is to walk away from the deal. And this could be the best option if the appraisal doesn’t go your way, and it’s certainly the safest.
Knowing The Neighborhood is Essential
If you don’t know the neighborhood you are planning to buy in; you need to be more on your guard. If you had only visited the area when you were shown the property, there could be hidden problems.
Check the area at different times of the day. Does it seem safe in the evening, for example? Try to find out if the neighborhood is expanding rather than heading in the wrong direction. Research local schools and look for thriving businesses to show which way the community is going.
The Home Inspection Report is Significant
There is an excellent chance, even with new construction, that the home inspector will discover problems. Many of the things in the report are likely to be fairly minor and won’t prevent the closing from happening. But there could be some more important things you need to have fixed before purchasing the home, or that could make walking away from the property a better option.
Issues you shouldn’t ignore:
- Water damage
- Pest infestations
- Mold problems
- Electrical or plumbing problems
- Foundation damage
- HVAC issues
Any of these problems are likely to be expensive to repair. Even something like mold could quite easily run into a few thousand dollars to fully repair. Things like water damage could indicate larger issues and have an average $2,500 repair bill.
Termites could be a major problem depending on your location, and this isn’t typically covered by homeowners insurance. Cracks in the foundations of a home could be a sign of long-term problems that you will want to avoid.
If you get a home inspection report containing any of these things, you might want to consider if continuing with the purchase is really worth the risk. If the answer is yes, it may be worth exploring getting a seller’s concession.
The Final Walkthrough Could Discover Problems
If you discover something wrong when you check the home, this could lead to delays pushing back your closing date.
Documentation Delays Do Happen
There is a lot of paperwork to read, check, and sign when closing on a house. Don’t cut corners, and if you have concerns, bring them to the attention of your real estate agent.
How Much Are Closing Costs on a House?
Many buyers ask their real estate agent or mortgage broker what are closing costs on a house. The question of who pays closing costs on a home also comes up too.
The closing cost on a house is certainly not insignificant. When you get to closing day, the bills you have to pay are usually substantial.
Fees will be due from the professionals who have worked on your transaction. The home inspector, appraiser, attorney, lender, and more, will have to be paid on the day.
You will also need to pay the first homeowner’s insurance premium, and all of this together can be around 3 or 4% of the price of the home. For an average home costing $300,000, you are looking at possibly more than $10,000 to pay on closing.
Lenders will provide you with a breakdown of their costs at least 3 days before closing. This closing disclosure should be similar to the loan estimate they gave you, so compare the charges and check that the terms are what you expected. Are the interest rate, monthly payments, and closing costs correct?
Keep in mind many mortgage lenders will require you to have an escrow agent hold money for payment of your property taxes. Some mortgage companies will waive this requirement if you ask them.
What Happens on The Day of Closing?
You will likely get an appointment at the title company’s office or the lender’s real estate attorney to complete the home closing. Typically, there will be a few people there, including the attorneys, someone from the title company, a representative from the lender, and real estate agents who might also be present.
The seller may not be there, as they can sign the closing documents in advance.
You will have to prove your identity with a photo ID. You will also need to bring any documents the title company or the lender requires. If closing costs aren’t part of the sales price, you will need a cashier’s check or certified check. The closing agent will not accept a personal check. You may also choose to have a wire transfer of your funds as well.
Any costs outstanding from the closing disclosure will need to be paid as well.
The home seller will sign the final documents to transfer the ownership. You will need to sign a settlement statement of the costs involved. There will also be a mortgage loan, deed of trust, and promissory note as part of the final loan documents to sign.
After everything is signed, the title company will make sure your name is registered as the new owner. The closing day on a house happens relatively quickly. You will usually complete the entire process in under an hour.
What About Remote Home Closings?
Today, it is possible to have a remote closing on a house. With remote closings, the parties do not gather in a room but instead close virtually. With a full remote closing, there would be a video conferencing app used like Zoom or Skype. Funds for closing can be done electronically with remote closings.
Some states will allow a remote closing, and others will not. You can check with a local real estate attorney to see if it is possible in your location. New buyers are finding out doing a closing this way is becoming more commonplace.
When Can You Move in After Closing?
It might be possible to move into your new home right after you have signed all the documents at your appointment. The date you can move in should have been agreed upon and been added to the contract.
If the seller needs to stay in the home after closing and you have agreed to this, a rent-back agreement should be signed. Then you will only be able to move in after that agreement ends and they have moved out.
Rent back agreements are not that common and are frowned upon by many real estate attorneys.
Bringing Things to a Close
The house closing process can seem complicated, but with the knowledge of what is meant to happen and the help of an experienced real estate agent, it shouldn’t be that tough. Once you have gone through all the home closing stages and paid all the bills, you and your family will have the keys to your new property.
Hopefully, you have found this guide to home closings to be useful. You now should have everything you need to know about closing on a home.
About the author: The above Real Estate information about closing on a house was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 34+ years.
Are you thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
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