Closing on a House: The Real Estate Closing Process Explained
Closing day is a big day in the world of homebuying. It’s the day the deal is sealed, and at the end of it all, you get the keys to your new home in your hands. Because closing on a house is such a big moment, it’s important that it all goes well.
Make sure you know what goes on during the closing process, what you should bring, and the steps that you should be going through to get to closing. If it seems daunting, don’t worry, your real estate agent, lender, attorney, or all three will help you get through closing day with ease.
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What Happens During the Closing Process?
For first time homebuyers, you might not know what a real estate closing process looks like or what happens. It may be helpful to understand who will be there, questions you’ll need to answer as the buyer, and what you will be signing before the big day.
Who Is Present During Closing?
Who will be present during the closing will vary from place to place. Generally, the closing will have in attendance some mixture of these people:
- Closing agent: A closing agent or escrow officer will help facilitate the closing of the transaction and works as a neutral third party. Often, a real estate agent will choose the closing agent you will work with.
- Attorney: This can be the attorney for the seller, buyer, or both. But often there is an attorney present. Sometimes your closing agent is a real estate attorney.
- Title company representative: There may be a title company rep there who provides the documentation of property title ownership.
- Seller: In some cases the seller and buyer never meet, in others they are both there for things like the closing.
- Buyer: As the buyer, you’ll need to be there to sign documentation and finalize your closing.
- Real estate agents: The buyer and the seller both have real estate agents helping with the process. In many cases, both agents will be present for the closing.
- Lender: Whoever your mortgage lender is will be there to go through the financing aspect of your closing. Many first time home buyers find the most help through their real estate agent and lender through the closing process because of their heavy involvement in the process.
Questions for the Buyer
During the closing process there are some questions you should be able to answer. The title of your home may designate you as the sole owner, but you can also get a title for joint tenancy, or having tenants in common.
- Sole ownership is for unmarried buyers buying the home in only their name.
- Joint tenancy is for couples, married or unmarried, who are buying the home together to protect ownership for both parties.
- Tenants in common are for two or more individuals to buy the home as partners and can split ownership in a variety of ways.
What You Will Sign at Closing
In reality, closing on a home is a signing marathon for the buyer. You’ll be signing a lot of paperwork during your final meeting. It’s not just a closing on your property, but also on your home loan. Again, just as the “who” will be different for each location, so will the document list. Though some of them may be titled something different, the type of document is similar and is intended to “dot every I and cross every T” in terms of your property and mortgage. If you’re concerned about understanding the language in your paperwork, don’t be afraid to have your attorney present.
- Promissory note: This note is related to your mortgage and outlines the terms and conditions of your loan including repayment penalties, interest rates, and term length.
- Mortgage/deed of trust: Signing your mortgage is basically signing your home as collateral for the loan you just took out.
- Monthly payment letter: This letter is to show your monthly payments and to break down principal, interest, taxes, insurance, etc. that goes into that monthly payment. It’ll also show when your first payment will start.
- PMI disclosure: If you have private mortgage insurance, this disclosure will outline your PMI obligations and payments. This information will be useful if you decide on refinancing.
- Closing disclosure: A closing disclosure is an itemized list of closing costs for both buyer and seller. It’s important to go through the closing disclosure carefully to be sure there are no mistakes.
- Warranty deed: This document transfers the title from seller to buyer.
- Proration papers: Proration papers go through how the buyer and seller are dividing up the property taxes, interest and HOA fees for the month in which the transaction is taking place.
- Declaration of reports: This is a document acknowledging that the buyer has signed off on all inspections and surveys for the property.
What To Bring to Closing: Documents for Buyer
Not only will you have a fair amount of signing to do, you’ll also need to have some documents on hand at your closing.
- Photo ID: A driver’s licence or passport will do.
- Check: This will need to be a cashier’s check or certified check, not a personal check. This is for your closing costs. You should be told the amount of your closing before closing day, but it’s another financial aspect of homebuying you’ll want to prepare for.
- Proof of insurance: If you have not supplied this before closing day, you’ll need it on closing day.
Steps to Closing on a House: A Checklist for Buyers
Your real estate agent and lender will help you through a checklist as a buyer, but generally the checklist is similar for everyone. Buying property is a big deal, so the process is involved for a reason. It’s designed to protect all parties involved from seller to buyer and all the people involved in between.
- Home inspection: The home inspection will ensure the buyer knows if something is wrong with the home and whether or not they want to back out of a sale or demand it be fixed.
- Appraisal: A third party will come in for the lender to evaluate the fair market value on the home. This ensures the sale price and value is fair.
- Title clearing: Your title will be the legal ownership of your home. Clearing the title ensures your safety as the property owner.
- Mortgage approval: Getting mortgage approval is the lender’s agreement to give you the money to buy your home based on your overall financial health.
- Review closing disclosure: Again, the closing disclosure is the official document of your mortgage and loan terms as well as closing costs. It’s important to review this document for any discrepancies.
- Final walk-through: Here’s where you do a final walk of your soon-to-be home. Check to be sure everything is out that is supposed to be and everything that is supposed to be fixed is finished before closing.
- Closing: The final step. Signing, signing, and more signing.
Closing on a home is a major step, but don’t fear. There is always an army of people around during the process, especially to help first time homebuyers through the process of closure. However, just be sure your attorney or real estate agent is there as an advocate for your best interests. Though the process is very involved, the end result is a brand new house key in hand.
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Chelsy is a writer from Montana who now lives in Boise, Idaho. She graduated with her journalism degree from the University of Montana in 2012. She enjoys talk radio, cold coffee, and playing Frisbee with her dog, Titan. Follow Chelsy on Twitter @Chelsy5
This post was updated November 6, 2018. It was originally published November 6, 2018.