Whether you’re working with someone who’s buying or selling a home, they’re participating in one of the biggest financial transactions they’ll ever experience. After so much time spent saving, budgeting, negotiating, and signing documents, it’s finally time to start the closing process. But there are still things to be done before the property is officially signed over to the buyer.
WHAT HAPPENS DURING CLOSING?
If a buyer has applied for a mortgage loan and it’s been approved, home closing begins. In real estate, the term closing means signing. An escrow account is typically used to complete the homebuying process. When the transaction is complete, the escrow account is then closed, hence, the term closing.
During the home closing process, the seller passes the property title to the buyer. At the end of closing, the deed will be recorded and the buyer will officially become a homeowner.
The closing process varies by state, but is typically handled by a neutral third-party closing agent. The closing agent is usually a real estate attorney or an official from a title or mortgage company. The closing agent explains the specifics of the settlement process and who needs to be there when it takes place. As a neutral third-party, the agent acts as a mediator between the buyer and seller. He or she ensures that all documents are signed and recorded. Then, the agent will make sure that all funds, including closing fees and escrow payments, are paid and properly disbursed.
CLOSING FROM A BUYER’S PERSPECTIVE
The buyer must complete many tasks before the closing process is complete. To ensure that their home is ready, the buyer should confirm any repairs mentioned in the sale contract have been completed. To do this, they might do a walkthrough of the home 24 hours before closing. Immediately after receiving loan approval, the buyer should confirm the time and date of settlement as well as the recipient of closing costs. Then, they should make sure they have a check or other acceptable form of payment ready for the down payment or any closing costs.
The home buyer will also want to gather any important documents that they may need to refer to during closing such as proof of title search and insurance, proof of homeowners insurance, mortgage insurance, home appraisal, inspection reports, etc.
CLOSING FROM A SELLER’S PERSPECTIVE
Sellers need to do a title search and obtain title insurance. This shows proof that they’re the legal owner of the property. The title will uncover any claims or judgments against the property. If there are any issues, the seller must resolve them in order for the sale to move forward.
Once the seller accepts the buyer’s offer, they may be asked to complete a home inspection. If the home is in need of any repairs, the seller may need to complete them before the inspection to avoid potential issues. Within the sales contract, the buyer might ask the seller to make repairs before closing.
If the buyer is borrowing from a lender to purchase the home, the mortgage company will arrange for a professional appraisal. The lender does this to ensure the loan amount aligns with the market value of the home just in case they need to repossess the house. If the seller’s home is worth less than the sales price, lenders are unlikely to approve the loan for the buyer. In cases like these, the seller should either ask the buyer to pay the difference, lower the sales price, or challenge the appraisal.
For the final walkthrough, the seller needs to ensure that they’ve made the requested repairs, removed all of their possessions, and thoroughly cleaned the property. If the buyer discovers an issue with the home, the seller needs to address it right away, or closing could be delayed.
As the owner finalizes the sale, they must sign the deed to the property over to the buyer. In some states, the seller’s attendance is required during the finalization of the sale.
The seller should bring the keys to the property and any outstanding documents and paperwork their attorney or escrow agent instructs them to bring, which may include proof they’ve completed all repairs requested by the buyer.
HOME CLOSING DOCUMENTS
During closing, the buyer must review, authorize, and date numerous legal documents. These documents include:
- State-Issued Photo ID
- Closing Disclosure: Informs the buyer about the costs associated with a home purchase including loan fees, real estate taxes, and other expenses. The closing disclosure also contains details about the loan such as the amount financed, the annual interest percentage rate, the finance charge, and the payment schedule.
- Promissory Note: Represents a buyer’s promise to repay the mortgage loan and details the loan amount, interest rate, payment schedule, length of term, and the penalties the lender can impose if the buyer doesn’t make regular mortgage payments.
- The Deed of Trust: The buyer pledges the home as a security for a loan, meaning if they fail to make mortgage payments, the lender can foreclose on the property.
- Certificate of Occupancy: If a buyer purchases a newly-built home, to legally move into the residence, they may need to sign this document to certify that the home is in compliance with local building codes and laws.
- Notice of Right to Cancel: Upon signing the notice of right to cancel, the buyer acknowledges that they can cancel the new mortgage loan within a three-business day window.
The seller typically brings and/or signs the following documents:
- State-Issued Photo ID
- Certificate of Title: A statement swearing that the seller has a right to sell the property.
- The Deed: If the home is paid off, the seller transforms ownership to the buyer.
- Mechanic’s Liens: The seller certifies that there is no possibility of a lien against the property.
- Bill of Sale: Itemizes any personal property the seller agrees to sell to the buyer and transfers ownership to them.
- Statement of Closing Costs: The seller acknowledges that they were informed about the various fees and closing costs ahead of time.
- Statement of Information: Required by the title company to ensure the seller is who they say they are.
WHAT ARE CLOSING COSTS?
There are various costs associated with buying a home. They’re often paid during the final stages of the closing process along with the down payment. Many of the common fees associated with closing include origination services, a percentage of the loan amount, appraisal reports, flood determination, home inspection, property tax, transfer tax, and much more. The average cost of closing on a home in the U.S. is over $13,000.
HOW LONG DOES A CLOSING USUALLY TAKE?
The entire closing process, from the initial offer acceptance to the final closing date, takes an average of 50 days. This is especially true for a traditional sale, in which a buyer is borrowing from a mortgage company or bank. It can take a while for a lender to originate and underwrite the loan. This is a time-consuming process because the lender has to determine if the buyer qualifies for the loan, which can often delay a closing. Nearly one-third of all closings are delayed, so buyers and sellers should be prepared for a potentially long closing process.
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