The day you close on your home is big day. After weeks of searching, open houses, negotiating and securing financing you’re finally ready to accept the keys to your new home. But what actually happens on closing day?
Most buyers know they’ll be signing a lot of documents on closing day, but the actual process can be mystifying. Let’s break down what happens and how you can best prepare for it:
What is a Real Estate Closing?
A real estate closing is the final settlement between buyers, sellers, and any third parties for the transfer of a property. This is when documents get signed, deeds are transferred, and all remaining payments are finalized. The whole process is usually managed by an escrow agent (usually, but not always, an attorney) that specializes in real estate closings and preparing all related documents.
In addition to paying the sellers the remaining balance for the sale, there’ll also be some closing costs you’ll have to cover. These are the fees you’ll pay to third parties that helped facilitate the deal. On average, closing costs can be about 3-4% of the purchase price. You’ll know the exact amount to bring a few days before the closing when your lender sends you a Closing Disclosure. This details all the final terms of your loan as well as the exact cost of your closing fees. Make sure to compare this carefully to your original loan estimate. If anything has changed then be sure to ask your lender why.
While the exact steps might vary from one state to another, most closings will go something like this:
- The buyer pays all remaining closing costs as listed in the Closing Disclosure.
- The seller transfers ownership by signing over the property title to the buyer.
- The escrow agent registers the new deed with the appropriate government office. This makes the buyer the official owner of the property.
- The seller receives their proceeds from the sale after any remaining mortgage balance and closings costs are paid off.
Where and When Will the Closing Take Place?
During the contract negotiation phase, you and the seller will agree on an expected closing date. Once your offer has been accepted and your security deposit is transferred you can expect several weeks to pass before your closing day arrives.
The expected closing day is only an approximation and is likely to change as the agents, your lender and the title agent try to find a date that works for everyone. There’s also the potential for delays if you encounter problems with financing, the home appraisal, title search, or the home inspection. On average, the time between an accepted offer and closing day is roughly 40-60 days. But this can vary widely depending on the state, county, and locality.
You can ask your Exclusive Buyer Agent for an estimate on how long they expect any closing to take.
If you’re taking out a loan, then the closing will take place at either the escrow agent or the lender’s office. To a large extent, the standard closing location depends on what the local traditions are where you’re buying. If you’re not happy with the arrangements then you can usually have them changed upon request. If you’re not taking out a loan, then there’s no lender involved so you and the seller can choose a location that is convenient for both of you. Using your attorney’s office or the seller’s attorney is an option but restrictions in client trust accounting may make it impossible for the attorney to disburse funds immediately.
What Documents Will You Sign?
There will be a significant amount of documents to review and sign as part of the process. Expect to sign your name at least a dozen times before the day is done. Here’s a look at some of the more important documents to expect at closing.
- The property deed
- The bill of sale
- Transfer tax declarations
- Closing disclosure
- The mortgage note
- The loan application
What Happens After the Closing?
Once everything has been signed and the checks have been handed over, the process is complete. As the buyer, you are now the official and legal owner of the property. You can now take immediate possession of the property. This may take place at a later date depending on your agreement with the seller.
There may also be some post-closing agreements. The most common agreements are reimbursements for real property taxes if the exact amount is unclear at closing, or repairs that could not be done in time before closing.
Let an Exclusive Buyer Agent Be Your Guide
Any real estate journey — from searching a listing to closing on a home — should begin with an exclusive buyer’s agent. Exclusive Buyer’s Agents work with the seller’s best interests in mind and help them every step of the way.
Find an agent in your area and review this Checklist for First-time Homebuyers to start the process.