After days, weeks or even months of house hunting, getting an offer accepted is exciting. You’ve found your new home, your purchase agreement is signed by the seller, and you’re about to start a new chapter of your life. Take some time to celebrate, but keep in mind that there’s still some work to do during the closing process. We’ll cover the basics and walk you through the most common steps to close, so you can get the keys to your new place without a hitch.
How Long Is the Closing Process?
Most closings take between 30 and 60 days. It’s a broad range, but that’s because there are a lot of moving parts. Many factors are tough to predict. For example, if you’re in a hot housing market, lenders, appraisers, and home inspectors can get backed up and cause delays.
Once you reach your official closing date, you can expect to spend one to two hours signing all the final paperwork.
How Much Are Closing Costs?
During negotiations, a buyer and seller must decide who pays closing costs. In many cases, each side will pitch in.
On average, the total cost is roughly two to five percent of the home’s sale price. Below are some of the most typical closing costs you can expect to pay.
• Loan origination fee. This goes to the lender and is usually one percent of the loan amount.
• Appraisal fee. This fee covers a professional appraiser evaluating your home and determining the fair market value for the lender. The cost is usually between $300 and $500.
• Credit report fee. The lender will charge a fee (typically less than $100) to order the credit report from a third party.
• Closing or attorney fee. The attorney or a title company receives this for their services. The amount depends on how involved they are during the closing process. Expect to pay somewhere between $300 to $1,000.
• Document preparation fee. This is another fee charged by either the attorney or the title company as part of its charge for handling the closing on your loan.
• Recording fees. Your mortgage documents must be filed at the county courthouse. The fees to do this vary by location.
• Tax service fee. This often amounts to less than $100, paid to a third-party service that makes sure all previous property taxes have been paid.
• State, county or municipal taxes and stamps. Many jurisdictions impose taxes on new mortgages, based on a percentage of the loan amount and are collected at closing.
• Title search. This is performed by a title company to determine if there are any unrecorded liens against the property. The fee is usually in the neighborhood of $300.
• Title insurance mortgage policy. Lenders require this to protect against any liens that haven’t been discovered. Policies typically cost a few hundred dollars.
As a buyer, you’ll need to set up an escrow account for home closing costs like taxes and insurance. In most areas, at least three months of property taxes must be collected. You’ll also need to pay for one year of homeowner’s insurance and two month’s-worth of premiums.
What Are the Steps to Close?
There are several steps you’ll need to take to protect your interests and ensure a smooth closing. Some of them may take some time for your lender, insurance company or a third-party to complete. The good news is that in most cases, all you need to do is complete a form or make a phone call to get the ball rolling.
1. Open an Escrow Account
Escrow means that an independent third party will hold on to money, documents and any other items that need to change hands during a transaction. After the closing is complete, the third party will make sure everyone gets what they’re due at the same time.
Anyone involved in the transaction can open an escrow account – the home buyer, home seller, real estate agent or lender.
So, who do you open escrow with? There are several options, with a bank, attorney or title company being the most common. In many cases, the buyer’s real estate agent will open escrow to put in the buyer’s earnest money deposit, which should be established in the purchase agreement.
2. Schedule a Home Inspection
So long as you included an inspection clause in your purchase agreement, now is the time to hire a qualified inspector to do a walkthrough of the home.
The inspector will provide a detailed report of the home’s structure, plumbing, electrical system and overall condition. You’ll have the opportunity to negotiate repair costs with the seller. Without question, the seller should be held accountable for addressing costly problems like a faulty foundation or collapsing roof. However, keep in mind that no home is perfect. It’s best not to jeopardize the purchase of your new home over a dispute to fix a cracked tile or loose fixture.
For more on the inspection process, check out the 5 Ins and Outs of a House Inspection.
3. Have the Appraisal Ordered
If you’re getting a home loan from a mortgage lender, it’s important to contact them after signing the purchase agreement so they can order an appraisal. This involves having a certified appraiser evaluate the home and calculate the home’s fair market value.
The mortgage lender will review the appraisal results and decide if the loan amount is acceptable considering the home’s value. If the appraisal comes in much lower than the sale price, you’ll need to renegotiate with the seller to cover the difference. Otherwise, the lender may cancel the loan.
4. Complete Your Mortgage Application
Even if you already received a preapproval letter from your lender, you must make a formal mortgage application to finalize your loan. Most lenders use the same standardized form, which can often be completed online. Submitting this form kick-starts the processing and underwriting of your loan.
The underwriter will make sure the property and you, the borrower, meet all eligibility requirements for a specific loan. This is when a loan is either marked “clear to close” or rejected because of a serious issue. If you get the green light, you should receive a Closing Disclosure that includes all the finalized details of the loan along with all the documents you’ll need to sign on your closing day.
5. Get Title and Homeowner’s Insurance
Your lender will likely require you to buy title insurance for several reasons. One is to ensure there are no claims made to the ownership of your home. If the homeowner – or previous homeowners – did not have clear ownership of the home, then your ownership may be at risk. Another reason is that previous owners may have had any tax liens against them, which means you could be on the hook to pay them.
Getting homeowner’s insurance is a lender requirement that protects both your interests and the lender’s. At a minimum, most lenders require a policy to cover the cost of rebuilding the home and replacing its main components. You can add coverage for other potential hazards like flooding if needed.
6. Prepare Your Paperwork
The documents you need to have on your closing day will depend on several factors. These include the type of property you’re buying, the terms of your purchase agreement, the type of home loan you’re receiving, and other requirements specific to your area. In most situations, your real estate agent, escrow company or attorney will supply much of the necessary paperwork.
Assuming you have a mortgage lender, below are some of the most common items you should bring to your closing.
• A Photo ID. In order for your signature to be notarized on several loan and title documents, you’ll need to have state-issued identification like your driver’s license.
• A homeowner’s insurance certificate. A closing agent will need to see proof that your insurance is going into effect on the day of your closing.
• A cashier’s or certified check. Your lender should provide you with specific instructions related to paying closing costs. If you haven’t rolled these costs into your mortgage payments and the seller isn’t covering all the costs, you’ll need to bring a guaranteed form of payment.
7. Do a Final Walkthrough and Close the Deal
Your final walkthrough of the home should happen a few days (or even a few hours) before you sign the final paperwork. It isn’t meant to be an in-depth inspection. The purpose is to ensure that no serious problems have surfaced, and that agreed-upon repairs have been made.
Turn on the lights, run the faucets, flush the toilets and examine each room. If you discover any major issues, you still have time to request compensation from the seller. Assuming the home checks out, you’re at the finish line.
Your closing will likely take place at the title company or mortgage company’s office, where you can expect to see all the key players involved in the transaction. These can include the closing agent, real estate agents, attorneys, title company representative, loan officer and home seller. A giant stack of documents will need to be signed, payments will be delivered, and, if everything is in order, you’ll get the keys to your new home!
Buying a home really is a journey. From the moment you decide to make a move to the last document you sign during the closing process, it can feel like a lifetime.
As long as you’re proactive about completing tasks and make sure you’re prepared for your closing date, you can spare yourself a lot of stress and become a new homeowner as quickly as possible!
Ready to start your home buying journey or need some guidance along the way? We’re here to help. Visit RocketHomes.com for everything you need through closing.