Buying a home? Here’s what to expect at the closing
Closing on a house marks the beginning of a new chapter, but the final step before becoming a homeowner includes lots of documents, signatures and fees. Here’s a closer look at what to expect on your closing date..\
What are closing costs?
Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo or townhome. You can expect to pay 2-5 percent of the mortgage loan in closing costs. These can include:
- Origination fee, which you pay to your lender to start the loan application
- Underwriting fee, which you pay to your lender to process the application
- Appraisal fee, which you pay to your lender to get an estimate of the property’s value, basically to make sure you’re paying a fair price and they’re not lending you more money than the house is worth
- Credit report fee, which you pay to your lender to have your credit checked
- Title search fee, which you pay to an agency to make sure the seller has the right to sell you the property
- Recording fee, which you pay to the local municipality to make the transaction official
- Transfer taxes, which you pay to the relevant government agencies
How much does it cost to close on a house?
Closing costs are typically 2 to 5 percent of the loan amount. They are typically thousands of dollars and can vary widely by state.
- 2020 national average closing costs including taxes: $6,087
- Missouri had the lowest average closing costs, including taxes, in 2020, at $1,571
- Washington, D.C. had the highest average closing costs, including taxes, in 2020, at $29,329
Closing costs can also vary depending on the purchase price of the home and how it’s being financed.
Closing costs can be rolled into the mortgage amount (known as a no-closing cost mortgage) or paid upfront to avoid paying additional interest.
How long does it take to close on a house?
The average time to close is 49 days for a home purchase and 43 days for refinancing, according to ICE Mortgage Technologies November 2021 report.
|Type of loan||Average purchase closing time|
|Conventional loan||48 days|
|FHA loan||50 days|
|VA loan||56 days|
Applying for a mortgage preapproval before you start shopping for a home can help you close sooner because a few of the verification processes will be completed ahead of time.
10 steps to prepare for a closing
Closing on a property is complicated. Here’s what you need to do to get ready:
Hire a real estate lawyer
Buying a house isn’t just a transaction between the buyer and seller. It’s also a relatively complex legal process. To help you navigate the process, you may benefit from hiring a real estate attorney who can ensure the closing goes smoothly. This is usually optional, but having a lawyer on your side can help you avoid unexpected issues down the line.
Open an escrow account
Most homebuyers open an escrow account during the start of the closing process, which is typically managed by the title company. This account holds all the money associated with the sale, like an earnest money deposit, before you officially close on the house. When closing ends, the mortgage provider distributes the funds to the seller and buyer respectively, ensuring a secure transaction.
Run a title search
Run a title search on the property you are purchasing early in the closing process. A title search will bring up any issues with the title, such as an existing lien or unpaid property taxes, which could jeopardize your legal right to buy and live in the home. Also consider buying title insurance during this time, which would cover the cost of title claims during your ownership.
Get a home inspection
Getting a home inspection is an important part of closing. Even the most beautiful houses can have hidden issues.
During a home inspection, a contractor or professional inspector will check the home for major issues, like foundation cracks, leaks, problems with the plumbing or electrical system, and potential safety hazards. Depending on the results of the inspection, you might decide to back out of the deal or you can ask the seller to fix the issues as a contingency of the sale.
Negotiate your closing costs
Although closing costs can be expensive, some costs are negotiable. See if your lender is willing to lower the origination fee or waive an application fee. If lender’s title insurance is required, ask your mortgage company if you can shop around to find the best rate rather than paying a fixed fee from the insurance company of their choice.
Confirm your closing date
The next step is to confirm your closing date. This is the date when the seller will be fully moved out of the home, and you will be able to move into the home. Keep in mind that the closing date is usually at least one month after the purchase offer has been accepted. It can take even longer if you run into unexpected hurdles during the closing process. Once you have confirmed the closing date, you can officially start packing your things.
Do a final walk-through
Even if your initial home inspection went smoothly, it’s still a good idea to do a final walk-through right before you move into the new house. It is always possible that damage could have occurred between the first inspection and your move in date. During the final walk-through, make sure the seller made all the necessary repairs and removed everything that was not included in the purchase agreement from the house and the property.
Attend the closing and pay the fees
At the closing, you will have two primary responsibilities:
- Sign legal documents: This process falls into two categories: the agreement between you and your lender regarding the terms and conditions of the mortgage, and the agreement between you and the seller transferring ownership of the property. Be sure to read all documents carefully before signing them. Do not sign forms with blank lines or spaces.
- Pay closing costs and escrow items: There are a number of fees associated with getting a mortgage and transferring property ownership, including property taxes, utilities and HOA fees. The funds are usually a certified check or cashier’s check made out to the escrow company or a wire transfer of funds to the banking institution. Personal checks are often not allowed.
Find out what type of identification is required before you arrive. Usually, only one type of identification is needed, though some companies require two. Government-issued identification, such as a driver’s license or passports, is normally accepted. If there are two or more borrowers buying the home, every borrower should be present for the closing.
Understand your closing documents
At the closing, you will receive a number of important documents to sign. It could be upwards of 100 pages, so make sure to ask your real estate attorney or realtor to explain what each document is for. Here are some of the documents you can expect to receive:
- Loan estimate: This document contains important information about your loan, including terms, interest rate and closing costs. Make sure all the information is correct, including the spelling of your name.
- Closing disclosure: Like the loan estimate, the closing disclosure outlines details of your mortgage. You should receive this form at least three days before closing. This window of time gives you a chance to compare what’s on the loan estimate to the closing disclosure.
- Initial escrow statement: This form contains any payments the lender will pay from your escrow account during the first year of your mortgage. These charges include taxes and insurance.
- Mortgage note: This document states your promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if you fail to make payments.
- Mortgage or deed of trust: This document secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.
- Certificate of occupancy: If you are buying a newly constructed house, you need this legal document to move in. Ask for a copy of the title policy and survey, as well.
Get your keys
The final step of the closing process is the most rewarding: getting your keys. All of the legal work is done at this point. However, the smaller, logistical steps are still important to finish. For example, make sure all of your closing documents are organized and stored in a safe place. Review your home insurance policy so you know what is and isn’t covered if you have a claim. If you opted to purchase a home warranty, keep that paperwork handy, as well.
Who is present at the closing?
Closing on a home is often done in steps and on different days. All parties do not have to be present, but the following parties may be present:
- Closing agent, who might work for the lender or the title company
- Attorneys: The closing agent might be an attorney representing you or the lender. Both sides may have attorneys. It’s always a good idea to have an attorney present who represents you and only your interests.
- Title company representative, who provides written evidence of the ownership of the property
- Home seller or their representative
- Seller’s real estate agent
- You, the buyer, or your representative
- Your real estate agent
- Your lender
The closing agent conducts the settlement meeting and makes sure that all documents are signed and recorded and that closing fees and escrow payments are paid and properly distributed.
What to expect on the day of closing
Don’t forget to do your wrist calisthenics! Closing day will mean signing a bunch of paperwork and handing over probably the largest checks you’ve ever written. You’ll need to present valid identification (your lawyer will confirm what qualifies) and the closing itself will mostly seem like a bunch of paper shuffling.
Factors that can lead to closing delays
A number of things can hold up your closing including:
- Low appraisal: If the home appraises for less than the value of the mortgage and down payment, and you don’t have the cash to make up the difference, your deal could be tanked
- Unmet contingencies: Whether it’s a home inspection gone awry or a broken appliance you notice on your final walkthrough, little things can derail a closing and cause the date to get pushed back
- Funds didn’t clear: If something changes in your finances or the money doesn’t come through from your lender as expected, your closing could be in trouble
- How long does it take to refinance a mortgage?
- How to negotiate your mortgage closing costs
- What homebuyers should know about closing on a house without a Realtor