Closing on a home is an exciting but complicated process. It involves a realtor, lender, and an inspection team working to get the buyer the keys to their new home. With this guide, a new buyer will know what to expect while learning the steps required to purchase a home.
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What Does it Mean to Close on a House?
Closing on a home is the last step in the home purchasing process. It’s a single day when the buyer and the seller meet to complete the final steps to transfer the property. They’ll sign their final documents, they’ll both pay any additional costs, and the bank will transfer funds from the buyer to the seller. The ownership of the home will officially move from the seller to the buyer.
When Does Closing on a House Happen?
Closing on a home is usually completed between 30 and 60 days after the seller has accepted an offer. The length of time between the offer acceptance and the closing date varies depending on the type of loan the buyer secures, negotiations, and the ability of both parties to overcome any complications that can arise during the process.
How Long Does It Take To Close on a House?
The final closing process usually takes a few hours. The methods leading up to closing include inspections and underwriting that will take 30 to 60 days to complete.
During the underwriting process, your lender will assess your credit score, credit history, and overall financial situation to determine if you can be approved for a loan.
Your financial situation determines your interest rate and whether they can fund your purchase. The underwriting process usually takes the most time to complete, anywhere from a week to 60 days. The rest of the team works together to have everything come together in the least amount of time possible for the parties to sign their documents.
Can Closing on a House Get Delayed?
Because there are many elements to a home closing, several factors can result in delays on closing day. A few reasons for closing delays include the following:
Appraisal Complications
Appraisals are property valuations conducted by licensed home appraisers to determine the current market value of a home. As part of the home-buying process, the lender supplying the financing will have the home appraised at the buyer’s expense to confirm that the house is worth more or the same amount as the loan.
Suppose the appraiser finds the home worth less than the buyer and seller agreed to. In that case, the seller will have to reduce the price to the appraised value, or the buyer may have to pay the difference between the appraised value and the purchase price in cash, depending on your state.
Loan Complications
Buyers who were dishonest on their loan applications or have changes to their work situations can see their closing date delayed or derailed. Buyers can also make big purchases or get hits on their credit by having outside merchants check their scores before transactions. Any additional credit checks appear as hits on a credit report and can lower your overall score while your mortgage application is still being underwritten.
The buyer wants the highest credit score possible to get the lowest rates and pay the least interest over the life of their loan. If a buyer’s score falls out of a specific range that they initially qualified for, the increase in the interest rate causes their monthly payments to go up, triggering the lender to change the buyer’s loan type or deny the loan. An increase in interest rates puts a home on its way to being unaffordable and suddenly out of reach for a buyer.
Home Inspection Complications
A home inspector checks the house for mold, structural problems, leaks, and other significant issues. Certain considerable complications can make the home ineligible to receive a loan.
The inspector shares this report with the buyer, who decides whether they still wish to purchase the property or not. Because of the home inspection contingency included in most purchase offers, the buyer can back away from a house with inspection complications without penalty if the seller does not correct these.
Property Walkthrough Complications
The final walkthrough is the last chance for the buyer to make sure everything is as expected before they sign the final paperwork. The walkthrough is the buyer’s final opportunity to ensure the agreed-upon changes and repairs are complete.
They’re also making sure the appliances are working, there’s no damage from the previous homeowners’ move, and everything is as it should be before making the deal official. The walkthrough includes checking for new water spots or mold and ensuring that there’s no indication of previously unnoticed plumbing or electrical issues.
Paperwork Complications
To close on a house, you must ensure that you have filled out the final paperwork correctly. For example, the lender will require the buyer to secure homeowners insurance before closing and bring proof of insurance on the new home on the day of closing.
If the home has had a large claim filed on it in the past, like a mold remediation claim, insurance companies may decide that the house is too risky to insure and deny coverage. If the buyer can’t secure coverage, the closing could fall through.
How Much Does Closing on a House Cost?
Typically a buyer can expect to pay anywhere from 3% to 6% of their home price in closing costs in addition to their down payment on closing day. The buyer usually pays more in closing costs, but they can negotiate with the seller to receive money at closing to help with the purchase.
The lender will provide the buyer with a closing document a few days before the closing date, with expenses outlined for the buyer’s review to be due at closing. Some standard closing costs include:
- application fee
- appraisal fee
- attorney fees
- closing fees
- loan origination fee
- lenders title fee
- homeowners insurance premium
- homeowners association transfer fee
- escrow funds
- pest inspection fee
- property tax
- private mortgage insurance
- underwriting fee
- transfer tax
Steps for Closing on a House
After a buyer and seller agree on a price, the buyer submits their mortgage application for review and then works with their agent to complete the following steps for closing:
Home Inspection
The buyer will hire a home inspector to walk the property and ensure the house and property are livable. That way, the buyer won’t have any significant repairs immediately after purchasing the home.
Home Appraisal
The lender will send an appraiser to inspect and evaluate the property. The lender uses the appraiser’s report to verify the value of the property the homeowner is selling. They’ll check by finding comparable properties in the neighborhood that have sold recently and assign the home a value.
Review Closing Documents
Review your documents to make sure you understand everything before showing up to sign the final paperwork. If you have any questions, now is the perfect time to check with your realtor to clear up any confusion. The following documents should be presented at closing and reviewed by the buyer.
Closing Disclosure
This document will inform the buyer what to expect to pay on closing day. The closing day payments include inspection fees, insurance fees, property taxes, and any other costs the buyer needs to be prepared to make during closing. The closing disclosure will also include the buyer’s loan amount, interest rate, monthly payments, and mortgage insurance.
Title Documents
These documents are the deed and other declarations of ownership. Title documents show property ownership transferred from the seller to the buyer on closing day.
Homeowners Insurance
Homeowners insurance is coverage for the home that would pay for repair or replacement of the covered items if there’s damage to the home or property. The lender may require the buyer to secure the coverage before closing and show proof of coverage when prompted.
Gathering Closing Finances
Check the closing disclosure for the exhaustive list of payments due when signing the final documents on closing day. A quick list of fees that will be due on closing day is as follows:
Cash to Close
Cash to close is the amount required to complete the home sale between the buyer and the seller. Please note that this rarely refers to cash, as most money is moved using a wire transfer.
Closing Costs
Closing costs are the additional money the buyer will submit to close on purchasing the home. It usually covers processing fees for the lender and the lawyer or title company on the closing day.
Earnest Money
Earnest money is a deposit from the buyer to the seller to show they’re serious about purchasing the home. Earnest money is held in escrow until the purchase is complete. The money is transferred to the seller and goes towards the home’s purchase price at closing.
Lender Credits
Lender credits are credits from the lender to the buyer, reducing the amount they’ll have to pay at closing. Borrowers usually receive them in exchange for a higher interest rate.
Dry Closing
During a dry closing, the buyer and the seller sign the closing documents and make the final payments despite delayed funding.
Final Walkthrough
The buyer takes their final walkthrough of the property before they go to sign the closing documents. The buyer confirms that the seller made all agreed-upon changes, and there aren’t any unwanted surprises or modifications to the property before it officially changes hands.
Bring Important Items
The buyer can eliminate stress leading up to their closing day by setting aside a few key documents in preparation. Check with the realtor for the exhaustive list, but a few critical documents include:
Identification
The buyer must bring a signed photo ID so the title company or law firm can verify their identity and make copies of their files.
Money for Closing Costs
The lender will provide the list of fees due for this portion of the closing payments to the buyer a few days before closing. Make an appointment with your bank to transfer any funds before closing.
Relevant Documents
Make sure to bring any relevant documents stipulated by the agent or seller, specifically the closing disclosure. A closing disclosure is a form that lists the buyer’s loan amount, monthly payments, interest rate, and other monthly and closing costs.
Proof of Insurance
Proof of insurance shows the lender that the buyer has insurance to cover the property. Buyers will typically present their insurance policy to satisfy this requirement before closing but will verify it starts the same day as closing.