Closing on a House: What to Expect
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If you're a first-time home buyer about to close on a house, congratulations are in order. You've come a long way through the home-buying process. Homeownership is so close you can probably almost taste it. But before you get to cross the threshold of your new home, there's one final step you have to go through before you get your keys: It's time to close.
Closing is the last item on your home buyer checklist. In a real estate closing, ownership of the property is legally transferred to you. This is the day that you sign all the paperwork to make the deal official.
The time it takes to close on residential real estate varies but may take anywhere from four to six weeks.
If you're paying cash, the transaction might go faster. If you've been approved for a loan, mortgage lenders need to make sure several requirements are met before handing the money over to the seller.
Everyone wants the closing to happen. You want the home. The seller wants the money. The lender wants to close the mortgage loan. The title company and real estate agents want to get paid. That's a lot of motivation, but it doesn't mean delays won't happen during the closing process.
A few examples of possible delays include:
Here are some of the things that need to happen to close a typical home purchase:
Some steps are out of your control and largely invisible to the buyer. For example, the lender will pay a title company to perform a title search. The title search tells the mortgage lender that no one else has a right to claim ownership of the property you are buying.
It's not all that common to back out of a mortgage loan before closing, but should you need to do so, our guide can help you navigate that process.
These days, you're likely to provide most documents digitally before your closing date. Your loan officer should supply you with a list of what you need to bring with you on closing day. It's a good idea to bring your phone, tablet, or computer so that you can access your email and the lender's loan portal, in case the lender is missing anything you previously submitted.
In addition, make sure to bring:
Closing costs are just one of the many expenses of homeownership. Average closing costs are typically 2% to 5% of the loan amount, though not every home buyer will have to pay them out of pocket on closing day. You might have to pay some fees, such as the appraisal fee or the credit report fee, but whether you pay anything on your closing date depends on the specifics of your loan.
Here are some common scenarios:
Closing costs typically include:
Other line items can affect the amount of cash needed to close. For example, if your mortgage lender will pay your property taxes and homeowners insurance premiums, you will need to fund an escrow account for those expenses. At closing, these are called prepaids.
Prepaids and all other closing costs are noted on your loan estimate that lenders must give to you after you submit your loan application. Some of the actual costs may increase at closing, but by law, others can't.
You will sign a mountain of documents at your closing. Take your time and look carefully at each page. These are legally binding documents. You have the right to read and understand each and every one of them, and to make sure they are error-free.
A notary public will be there to check your identification. They may take a photo of it and may require your fingerprint.
Once the purchase transaction is funded (by the loan proceeds and your down payment), a closing agent distributes the money due to all parties.
Most buyers get the keys to the home on closing day (unless you and the seller have agreed to something different in the purchase contract). Find out from the closing agent if there are any additional steps you need to take after closing in order to take possession of the home.
Once the closing process is completed, there's nothing left for you to do but enjoy your new home!
Read more about closing on a house:
Yes, lenders often run a final credit check on the day of closing to make sure no significant changes affect your loan eligibility.
Don't do anything that could affect your creditworthiness before your home purchase is complete. For instance, avoid these actions:
Also, be sure to return all requested paperwork immediately to minimize the chance of delaying your closing. Your loan approval and the purchase agreement have deadlines that everyone needs to beat.
Under most circumstances, the buyer can back out of buying a home. But there might be a significant cost for doing so. It depends on what's in the purchase agreement. This is where contingencies come in.
For instance, if your purchase contract is contingent on the sale of your current home and it doesn't sell, you might be able to back out. Likewise, an inspection contingency could allow you to walk away if significant issues are found during the inspection.
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