Closing On A House: Your Step-By-Step Guide
Lauren Nowacki9-minute read
February 19, 2021
Closing day is near. You’ve already gotten approved for a mortgage, found your new home and had your offer accepted. You’re well-versed in how to buy a house, now you need to become the expert on closing on a house.
This guide will help you know what to expect on closing day and how to prepare, so you can get to the table faster and avoid any roadblocks on your path to homeownership.
Overview: The House Closing Process
Closing on a house is the most rewarding part of the homebuying experience. You should walk into your closing day with all your questions answered, negotiations settled, your mortgage approved. On this day, you should also be ready to become the legal owner of a home.
By the time you reach the closing table, you’ll have already accomplished so much – from getting mortgage preapproval and finding your dream home to getting your offer accepted, having the home appraised and inspected and completing the final walk-through. You’ll likely have gone through a range of emotions, too, like excitement, anxiety, nostalgia, exhaustion and pure joy.
As you approach the big day, there will still be much to do to ensure you get to the part where the keys are handed over to you, the new homeowner. Here’s a guide to help you prepare.
How Long Does It Take To Close?
On average, it takes about 30 – 45 days to close on a home, from filling out your mortgage application to showing up at the closing table. Closing day, the day you sign your final paperwork, lasts about 1 – 2 hours as long as everything goes as planned.
How long it takes to close on a house will depend, in part, on your organization skills, the experience of the loan officer and the reliability of the seller. Follow these final steps to do your part in ensuring your closing goes as smoothly as expected.
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Step 1: Understanding Your Documents
Taking inventory of your closing documents will ensure you and your lender have everything that’s required for closing. It also helps you locate and send any documents requested at the last-minute, which helps you avoid holding up the process. Make a list of all of the documents you need and the deadlines for turning them in. Check them off as you send them to your lender and mark the date they were sent. Make sure to get verification that they were received. Use this list of common closing documents to start.
As required by law, your lender will send the Closing Disclosure at least 3 days before closing day. This document lays out, in detail, all of the important information of your loan. That includes:
- Loan term, loan amount and interest rate
- Estimated amount of money you’ll pay on your loan each month
- Closing costs, which include origination, underwriting and government fees
- Amount of money you’ll need to bring to closing, also known as cash to close
- Loan disclosures
Thoroughly reviewing this document is one of the most important steps you’ll take when closing on a house. You’ll want to compare the closing disclosure to the loan estimate to make sure there aren’t any discrepancies. If you find an error, contact your lender to correct it. It may delay your closing, but the mistakes must be fixed before you sign the document.
A Seller’s Disclosure is a document that the seller is legally required to fill out to list all of the known defects of the property, which could influence your decision to purchase the home. Depending on the disclosures your state requires, these defects may include repair history, water damage, foundation issues, infestations, lead paint or malfunctioning systems.
Read the disclosures carefully as there could be major issues you may not have noticed on your walkthroughs of the home. This is one of the last chances you have to learn more about the home before making that big purchase – there’s usually a “no–return policy” on houses. Seller’s disclosures can help you save thousands of dollars or even help prevent buyer’s remorse.
If there are any red flags on the disclosures, request more information from the seller or have a home inspector look more closely at the specific issues. You’ll want to get as much information you can to determine whether the home is worth the time, money and stress involved in fixing or living with the particular issue. If you still wish to proceed with the purchase of the home, you could consider negotiating with the seller to have them pay for the repair or take the cost to fix it yourself off the purchase price.
During the closing process, a title company, working in the interest of you and your lender, will perform a title search to ensure the seller owns the right to the property and can legally sell you the home. The company also looks for existing liens on the home, to prevent new homeowners from getting hounded by the previous owner’s lenders for unpaid debts.
A real estate attorney or escrow company will review the title documents to ensure the title is as expected, typically that the seller owns the rights to the home and there are no existing liens or other clouds on the title.
By now, it will feel like ages ago that you applied for your mortgage. That’s why your lender creates a copy of your original application for closing. You’ll need to review it for accuracy and let your lender know if there have been any changes since first applying. For example, any job changes or new debts must be disclosed to your lender as it can affect the terms of your loan.
Step 2: Selecting A Homeowner’s Insurance Plan
Most lenders require buyers to get a homeowners insurance plan for the new home and show proof of this insurance just before or during closing. The cost of your insurance plan will depend, in part, on the features and condition of your home, what you choose to have covered and how much you’re willing to pay for a homeowners insurance deductible.
Step 3: Preparing Your Finances For Closing Day
Your Closing Disclosures should spell out what you’ll need to pay on closing day, but here’s a quick rundown of various expenses that may be paid by you, your lender or the seller.
Closing costs are the fees paid to your lender and other third parties to close on your loan. They’re typically around 3% – 6% of the purchase price of the home and include several fees, like the appraisal, origination, title insurance and application fees. You may also have to pay private mortgage insurance (PMI) depending on the type of loan you get and how much you put down.
Earnest money is the money you put down to show the seller you’re serious about buying their home and protects the seller if you were to back out of the deal. The money is held in an escrow account until the deal is completed, then applied to your down payment or closing costs.
Lender credits are provided by the lender to absorb your closing costs in exchange for you paying a higher interest rate. This could be a good option for cash-strapped buyers who may not have a ton of money to pay closing costs. However, a higher interest rate means you’ll pay more in interest over the life of the loan.
Cash To Close
Cash to close is the total amount of money – closing costs included – that you need to bring on closing day. Your down payment makes up much of your cash to close. Depending on your loan your down payment could be as little as 3% or as high as you wish. If you have a government-backed loan, like a USDA or VA loan, you may not have a required down payment.
If you’ve already made certain payments to your lender (including your earnest money deposit), you may receive credits – or a deduction in your cash to close.
Sometimes a seller will agree to pay part or all of your closing costs. If you’ve negotiated to have the seller pay some of your closing costs, remember to factor in those seller concessions.
A dry closing happens when all parties agree to proceed with the closing even though the disbursement of funds will happen after the closing instead of during it. All other requirements to close on the loan are still fulfilled at this closing. Until the seller receives their funds, they remain the owner of the property. Buyers won’t legally own the property until their mortgage is funded.
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Step 4: Planning What To Bring To The Table
Most of the closing documents you’ll review and sign on closing day will be provided to you at closing. There are some items you’ll need to bring with you on closing day. To make sure you don’t forget anything on such an exciting day, create a bulleted checklist and check off your items as you pack them. Start your list with these required items:
- A form of identification, like a driver’s license, passport or government-issued photo ID
- A cashier’s or certified check in the amount of closing costs due (cash and personal checks are not usually accepted)
- Your Closing Disclosure to compare to final paperwork
- Proof of your homeowners insurance
You should also bring a list of important contacts in case any issues come up. This may include your real estate agent or attorney, if they’re not present at closing.
How To Avoid Common Roadblocks To Closing
You won’t be able to avoid roadblocks that may be out of your control, like a title search revealing a lien against the home, an appraisal coming in lower than expected or a home inspection turning up an unknown issue with the property. However, there are other delays that are in your control and that you can avoid.
Financial issues are one of the most common causes of delay that the buyer can control. They can happen when a buyer is late turning in such required financial documents as bank statements, tax returns or paycheck stubs.
Issues can also come up when a buyer loses their job, takes on new debt, or misses a payment, which impacts their credit score. These actions can affect the terms of your loan or could even change whether you qualify for the loan. While in the process of getting a mortgage to buy a home, stay on the straight and narrow when it comes to your finances. Refrain from making big purchases, maxing out your credit card, opening new credit accounts or missing your monthly payments.
You’ll also want to look for red flags before signing documents or transferring money. Mortgage wire fraud is a common phishing scam that uses fake emails, phone numbers or websites to impersonate your real estate agent or lender. Through emails or texts that look authentic enough and may even contain your personal information, hackers convince homebuyers to send their closing costs or down payment to a fraudulent account. To prevent this from happening to you, review all documents carefully and beware of last-minute changes or urgent requests to “act fast.” Never provide your financial information or social security number in an email and always verify the email address, phone number or website with those your agent or lender gave you.
The Bottom Line
If you’ve taken all the necessary steps provided in this article, congratulations! You’re ready for closing day. While the process to get there may have been a bit stressful and the stack of papers that you’ll sign may seem overwhelming, don’t forget to enjoy this exciting day – the day you become the owner of a new home.
Rocket Mortgage® is here for all of your homeownership needs – even after you purchase a home. Stay up to date on maintaining your new mortgage and learn more about refinancing or selling your home in our Learning Center.
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Your Closing Disclosure is an important loan document, but it can be difficult to interpret. We broke down the essentials in this complete guide.