Prepare For Your Real Estate Closing
Nationwide, nearly six million new and existing homes are expected to be sold this year, the largest tally in nearly 10 years.
Meanwhile, each transaction will culminate in a “closing”, the legal process by which ownership of a home changes. The closing is the last step before you get your keys.
Even experienced home buyers can get flummoxed in a closing, where unfamiliar documents and customs can lead to stress.
Therefore, it can help to learn a little about the real estate closing process to help you be prepared and ready to receive the keys to your new home.
What Is A Real Estate Closing?
Real estate closings go by different names, depending on where you live.
In some parts of the country, they’re known as “closings” and in others, they’re known as “settlements”.
In California, closings are known as “escrow” (which is not be to be confused with this other escrow).
Regardless of where you live, however, the purpose of a closing is the same — to legally transfer ownership from seller to buyer; and, for homes financed with a mortgage, to sign the appropriate home loan documents.
Other documents are signed at closing, too, including certain disclosures and guarantees. Buyers can expect to sign and/or initial 150 times or more.
Home Buying: Between Contract And Closing
The path to your closing begins the day your purchase agreement gets signed.
In the agreement, a closing date is assigned, which is agreed upon by all parties; and a location at which the closing will occur is assigned as well.
Purchase closings are typically scheduled for between 30 and 60 days into the future, although some closings may be scheduled for sooner than this; and some closings may be scheduled for later.
For contracts written on new construction, closings may not occur for one year or longer.
This period between contract and closing is sometimes called being “in escrow”; the home sale is pending, but not yet complete.
It’s during this time that the buyer performs additional due diligence, including ordering an inspection of the home; and, begins to get mortgage financing in place.
The first few days after signing can feel like a rush.
If you’ve been pre-approved previously, once you’re under contract you can choose to lock today’s mortgage rates. However, if you have not yet spoken to a lender, you’ll want to do that post-haste.
You’ll also want to have your mortgage approval paperwork handy.
Although mortgage approvals can be issued quickly, delays can derail your closing and cost you money — and time-to-close is getting lengthier, on average, nationwide.
According to Ellie Mae’s Origination Insight Report, the average number of days required to close on a purchase loan reached 45 days in June, which is the longest in more than a year.
During the approval process, your lender will request income and asset verification, signatures on disclosures, and other documents required to meet loan guidelines.
It will also commission an appraisal of the home-to-be-purchased.
All of these steps take time and, once completed, the lender will issue a final underwriting approval. This is known as being “clear-to-close”.
Home Buying: Closing Day
Closings are typically officiated by a company known as a Title Agency; or, by an attorney. This, too, depends on state custom.
As one of the final steps of the closing, once all required signatures have been recorded, money is transferred from buyer to seller.
The money is typically transferred in two parts.
The first part is the remaining portion of the homebuyer’s down payment, which is the downpayment amount minus whatever earnest money was paid on the date of contract.
Funds to the seller may not be paid in cash or with a personal check. Only wired funds or a cashier’s check will be accepted.
The second part is the funds from the lender, which makes up the difference between the buyer’s down payment and the home sale price.
Note that for zero-down loans such as the VA loan and the USDA loan, there is no downpayment for a buyer to make; and the earnest money deposit is typically returned in full.
Next, after all documents have been signed, and all funds distributed, the deed of ownership will be transferred from seller to buyer, and recorded by the officiant — either the title company representative or the attorney.
It’s at this point that the buyer becomes a homeowner.
To keep your closing going smoothly, though, there are some documents you’ll want to bring with you.
First, make sure to pack a valid government ID. This can be your driver’s license, your passport, or anything else you use to identify yourself officially.
You should also bring a copy of your new homeowner’s insurance policy, which shows that your new home is covered beginning with the date of your closing; plus, proof of payment of the same.
Lastly, have your “cash-to-close” ready in advance, whether via wire or cashiers check. This amount will have been communicated to your by your lender.
Everything else will be waiting for you at the closing.
Finding the right neighborhood is the key to your happiness in your new home. Once you buy and move into your new home, there is not much you can do about the neighborhood unless you move again. Researching the neighborhood in which you plan to buy is probably one of the most important things you can do. Not only are you buying the home in which you’re going to live, but you will be buying into the local community. Here are a few questions you should ask yourself before you buy your next home.