Owning a home is a cherished dream for many. Finding the perfect house, negotiating the offer, and securing financing are all exciting steps towards fulfilling that dream. But before you pop the bubbly and step across the threshold, there’s one final hurdle: House Closing Process. This crucial stage can seem shrouded in mystery, with terms like “escrow” and “closing costs” swirling around, leaving you wondering just how long it will take and what to expect. Fear not, intrepid homebuyer! 

House Closing Process

In this comprehensive blog, you’ll explore the entire closing process, demystifying timelines, potential delays, and key participants so you can confidently approach the closing day and clearly understand what lies ahead.

What Does it Mean by Closing on a House or its Process?

Simply put, closing on a house signifies the official transfer of proprietorship from the seller to you, the buyer. It’s the culmination of weeks (sometimes months) of paperwork, inspections, and approvals, finally culminating in exchanging money and legal documents. Closing typically happens at a title company or escrow agent’s office, where all involved parties – buyer, seller, lenders, agents, and attorneys – come together to sign off on the final transaction.

Insight into the Close on Escrow & Closing on a House

While often used interchangeably, there’s a subtle distinction between “closing on escrow” and “closing on a house.” Escrow speaks about a neutral third party holding all money and documents related to the transaction until all conditions are met for the transfer of ownership. Closing, on the other hand, is the final act of signing paperwork and officially becoming the legal owner of the house. So, think of escrow as the secure container within which the closing process unfolds.

Distinguishing Close on Escrow vs. Closing on a House

The term “close of escrow” encapsulates the intricate and comprehensive process culminating in the final transfer of property ownership. It encompasses various stages, commencing from the initial agreement between the buyer and seller, traversing through document authentication, inspections, and resolution of financial aspects. Essentially, it denotes the overall timeline wherein all the transactional components involved in purchasing a home are ultimately concluded.

In contrast, the “closing date” presents a more specific designation. Visualize it as the grand culmination of the property acquisition expedition. The “closing date” precisely signifies the day when keys are exchanged, the last signatures are inscribed, and the buyer formally assumes ownership. It epitomizes the convergence of all procedures encapsulated within the close of escrow and the entire home-buying process.

Recognizing this differentiation holds significant importance. Amidst the gushing paperwork, negotiations, and intricacies of home buying, clarity emerges as an invaluable asset. Understanding the precise significance of each term can guide decision-making, manage expectations, and facilitate smoother communication among all involved stakeholders.

Each homebuyer’s journey is distinctive, and occasionally, complexities can cloud understanding. This is where professionals become pivotal. Relying on experienced experts can navigate you through the maze of real estate terminology, ensuring comprehensive knowledge at every stage. Remember, in real estate, learning empowers and serves as the cornerstone for a seamless and successful transaction.

The Timeline of House Closing Process

While the 30-45 day ballpark for closing provides a basic framework, let’s explore the timeline in more detail, week by week, to shed light on the specific activities happening at each stage:

Week 1-2: Acceptance and Prep Work

  • Day 1-3: Offer accepted! The seller acknowledges your offer, and both parties sign the purchase agreement.
  • Day 4-7: Document gathering begins. You compile paperwork like tax returns, bank statements, and proof of employment for your lender. The seller gathers their required documents as well.
  • Day 8-10: Early title search kicks off. The title company initiates a preliminary title search to identify any potential ownership issues.

Week 2-4: Loan Processing and Underwriting

  • Day 11-14: Mortgage application submitted. You officially submit your mortgage application to your chosen lender.
  • Day 15-17: Appraisal scheduled and completed. A licensed appraiser visits the property to determine its fair market value for loan purposes.
  • Day 18-21: Underwriting commences. The lender thoroughly reviews your financial information and the property appraisal to assess the loan risk and determine loan approval.
  • Day 22-28: Conditional loan approval received (hopefully!). If everything checks out, you receive a conditional loan approval contingent on completing additional tasks like inspections and final title searches.

Week 4-6: Inspections and Documentation Review

  • Day 29-31: Schedule a home inspection, possibly including specialized inspections like termite or radon tests.
  • Day 32-35: Receive and review inspection reports. You and the seller negotiate repair needs based on the findings.
  • Day 36-38: Final title search and insurance finalization. The title company completes the comprehensive title search to confirm clear ownership and issue title insurance policies.
  • Day 39-42: Closing disclosure received. This detailed document outlines all final closing costs and loan terms.
  • Day 43-45: Review and sign closing documents. Both parties meticulously review and sign all closing documents, including the final loan agreement and deed of transfer.

Week 7-8: Closing Day and Beyond!

  • Day 46-47: Closing day! Funds are wired, keys are exchanged, and you officially become the homeowner! Congratulations!
  • Day 48-50: Post-closing activities. Your lender schedules the recording of the deed with the local authorities, and escrow distributes funds as per the closing agreement.

What Things May Cause Delays?

While the ideal closing journey flows smoothly like a well-rehearsed symphony, reality often throws in off-key notes in the form of unforeseen circumstances. Here’s a closer look at some common closing disruptors and how to turn them into mere tempo changes:

Loan Woes

When applying for a loan, missing paperwork can cause major delays. Make sure to gather and submit all required documents upfront, and keep communication open with your lender. Also, monitor your credit closely and address any issues before they become problematic. Lastly, get property inspections before making an offer to avoid surprises and negotiate any issues that arise.

Title Troubles 

Issues with property ownership, like unclear boundaries or hidden liens, can stall the closing process. Work with a reputable title company to prevent this and consider title insurance. Conduct property surveys beforehand and involve legal help if disputes with neighbors over boundaries arise.

Communication Catastrophes

Lack of contact between parties involved in the home-buying process can be frustrating. Establish clear communication channels, follow up regularly, and document conversations. Always clarify doubts immediately and involve agents or lawyers when needed to ensure everyone understands the information correctly.

Appraisal Anomalies

A down appraisal can throw a wrench in the whole process. It can create complications if the appraised value comes in lower than the approved-upon purchase price. To avoid this, be realistic about the property’s worth when making an offer, and consider factors like recent comps and market trends. Additionally, be ready to negotiate with the seller or obtain private mortgage insurance if necessary.

Insurance Impediments

Obtaining homeowners insurance can sometimes become a stumbling block, especially for older homes or those located in high-risk areas. Research insurance options before making an offer to avoid last-minute surprises. Talk to multiple providers and be upfront about any potential risks to ensure smooth sailing.

Preparation Steps for Closing on a House 

Closing on a house shouldn’t be a sprint fueled by last-minute panic. Instead, waltz onto that closing day with the grace of preparation! Here’s how:

  • Consider employing a real estate attorney

Home purchasing involves more than just a transaction between the buyer and seller. It encompasses a legally intricate process. To navigate this effectively, hiring a real estate attorney can be beneficial. Their expertise ensures a smooth closing, potentially preventing unexpected issues.

  • Establish an escrow account

Many homebuyers set up an escrow account during the closing process, often managed by a title company. This account holds all funds related to the sale, such as earnest money deposits, until the house officially changes ownership. Upon closing, the mortgage provider disburses funds to the respective parties, guaranteeing a secure transaction.

  • Conduct a title search

Conduct a title search on the property early in the closing process. This search identifies any title issues, such as liens or unpaid property taxes, that might threaten your legal rights to purchase and occupy the home. Consider obtaining title insurance at this stage, covering potential title claims during your ownership.

  • Arrange for a home inspection

A crucial part of closing is conducting a home inspection. Even aesthetically pleasing homes can harbor hidden issues.

During this inspection, a contractor or professional inspector examines the home for significant problems, like foundation cracks, leaks, plumbing or electrical system issues, and safety hazards. Based on the findings, you might opt to withdraw from the deal or request the seller to rectify issues as a condition of sale.

  • Negotiate closing costs

While closing costs can be high, some expenses are negotiable. Explore the possibility of reducing the origination fee or waiving application fees with your lender. If a lender’s title insurance is mandatory, inquire whether you can shop around for better rates instead of adhering to a fixed fee from their designated insurance company.

  • Confirm the closing date

Confirm the closing date, which marks the seller’s complete move-out and your move-in. Typically set at least a month after accepting the purchase offer, this date might be extended if unexpected hurdles arise during closing. Once confirmed, you can start preparations for packing and arranging moving services.

  • Perform a final walk-through

Even after a smooth initial home inspection, conduct a final walk-through just before moving in. There’s a chance of damage occurring between inspections. Ensure the seller completed necessary repairs and removed all items not included in the purchase agreement from the house and property.

  • Grasp your closing documents

During closing, you’ll receive several crucial documents for signing, potentially spanning over 100 pages. Seek clarification from your real estate attorney or realtor on each document’s purpose. Some expected documents include:

  • Loan estimate: Contains crucial loan details like terms, interest rates, and closing costs. Verify all information for accuracy, including your name’s spelling.
  • Closing disclosure: Outlines mortgage specifics, typically provided three days before closing to compare against the loan estimate.
  • Initial escrow statement: Lists lender payments from your escrow account during the first mortgage year, covering taxes and insurance.
  • Mortgage note: State your commitment to repay the mortgage and outline terms and consequences for non-payment.
  • Deed of Trust or Mortgage: Secures the note, granting the lender a claim against the home if terms are breached.
  • Certificate of occupancy: Essential for moving into newly constructed homes. Request a copy of the title policy and survey as well.
  • Purchase agreement: A binding contract detailing real estate transaction terms, finalizing the property purchase upon signing.

Involved Parties During the Closing Process?

The process of closing on a home typically occurs in stages, often spanning different days. While not all involved parties need to be physically present, the following individuals or entities commonly participate:

  1. Closing Agent: This individual, who may work for the lender or the title company, oversees the process. They might also be an attorney representing either you or the lender. It’s advisable to have a real estate lawyer exclusively representing your interests present during the closing.
  2. Attorneys: In addition to the closing agent, having a real estate lawyer advocating solely for your interests is highly recommended.
  3. Title Company Representative: Offers documented proof of property ownership.
  4. Home Seller or Their Representative: The seller or their authorized representative is typically present.
  5. Seller’s Real Estate Agent: The agent representing the seller’s interests.
  6. You, the Buyer, or Your Representative: Your attendance or representation is crucial during the closing.
  7. Your Real Estate Agent: Your agent plays a role in facilitating the process on your behalf.
  8. Your Lender: The entity financing the purchase.

The closing agent presides over the settlement meeting, ensuring all necessary documents are signed & recorded and that closing fees and escrow payments are accurately handled and distributed.

How Much are Closing Costs?

Closing costs represent the mandatory fees and charges essential for finalizing ownership of a property, encompassing houses, condos, or townhomes. Typically amounting to 2-5% of the mortgage loan, the 2021 national average, including transfer taxes, was $6,905, as per CoreLogic data. Notably, Washington, D.C., registered the highest average closing costs at $29,888, while Missouri reported the lowest at $2,061 in the same report.

These costs fluctuate based on the property’s purchase price and financing method but commonly include various fees:

  • Origination fee: Paid to the lender to initiate the loan application.
  • Underwriting fee: Paid to the lender to process the application.
  • Appraisal fee: Paid to evaluate the property’s value, ensuring a fair price and preventing overborrowing.
  • Credit report fee: Paying to the lender for credit assessment.
  • Title search fee: Paid to confirm the seller’s property rights.
  • Recording fee: Paid to local authorities for official transaction documentation.
  • Transfer taxes: Paid to pertinent local or state government bodies.

Closing costs can be merged into the mortgage (known as a no-closing cost mortgage) or settled upfront to avoid accruing additional interest. Additional expenses on the closing day may include attorney and notary fees, as well as certain local taxes imposed by municipalities on real estate transactions.

Key Takeaways

Understanding the intricacies of closing on a house helps set realistic expectations and navigate the process smoothly. While the average timeline falls between 30-45 days, expect potential delays and proactively prepare by gathering documents, asking questions, and staying organized. Remember, the closing day marks the culmination of your journey toward homeownership – a milestone worth celebrating with patience and informed expectations.