Last updated on August 26th, 2023 at 06:49 am
Buying a house is one of the most significant investments in your life. However, the process can be quite overwhelming.
There are a lot of steps involved, and it’s easy to get lost in all the paperwork and legalities.
This is where closing comes in.
It’s the final step in buying a home and to ensure that everything goes smoothly.
We will take you through each step involved in closing on a house.
From paperwork, to choosing the right lender, and opening an escrow account, to ordering additional inspections if necessary, we’ve got you covered.
We will also cover what you need to bring on closing day and how to negotiate repairs if needed.
By the end of this guide, you’ll be well-equipped with all the knowledge required for a successful house closing experience.
What Are the Steps to Closing on a House
Closing on a house involves several steps.
- Complete a final walkthrough of the property after securing financing and obtaining a mortgage loan is necessary.
- Purchase homeowners insurance and provide proof of coverage before attending the closing meeting to sign paperwork and transfer funds.
1) Review the Paperwork Involved
Understand the paperwork involved during the transaction.
While signing a promissory note that legally binds you to repay your mortgage loan and transferring ownership through a deed are integral parts of this process.
- Secure title insurance for protection against potential future claims against your property’s title.
- Reviewing a closing disclosure statement outlining your mortgage terms and closing costs can help ensure that there are no surprises at the closing table.
2) Choosing the Right Lender
Choosing the right lender to ensure that you get the best deal possible.
Thoroughly research and compare lenders based on various factors like interest rates, loan terms and fees.
Reading online reviews or seeking recommendations from friends and family can help you assess each lender’s reputation.
Working with a mortgage broker can be another option to connect with multiple lenders while negotiating terms with them.
Overall, selecting the right lender means you’re one step closer towards achieving homeownership.
3) Opening an Escrow Account
Opening an escrow account to ensure a smooth closing process.
It involves depositing earnest money into a third-party account held by an escrow agent or company.
This protects both parties from fraud and ensures that all financial obligations are met before any money changes hands.
Once all conditions of the purchase agreement have been fulfilled, including satisfactory completion of the final walkthrough and resolution of any contingencies, the funds in the escrow account are released to the seller.
4) Review the Seller’s Disclosure
What is included in the seller’s disclosure form?
Search for any red flags or potential issues that need addressing before closing.
If you are the buyer; you should have hired a home inspector who can identify undisclosed property defects such as termites is highly recommended.
As a homebuyer, after reading through the seller’s disclosure, this is your opportunity to address any concerns.
5) Getting a Home Appraisal
Get a home appraisal. Lenders usually require an appraisal to determine the property’s fair market value without overpaying or undervaluing.
- The average cost of a home appraisal is $300-$500. (Source: HomeAdvisor)
An appraiser will assess varying factors such as property condition, location, and recent sales in the area to determine its worth.
For sellers, its important to ensure your house is well-maintained before the appraiser arrives as it can affect your appraisal value.
6) Complete a Home Inspection
After your offer is accepted, complete a thorough home inspection before closing on the property.
You can identify any defects or issues with the property that may require negotiations with the seller before completing your purchase.
If you live in a city with termites, a termite inspection is recommended.
The seller may give you a credit on the house or they may compete the repairs themselves.
During your final walkthrough, you will be able to see if the repairs have been made. (More on this below).
If the seller gave you a credit, you will get this at closing. Then you can decide which repairs you would like to make.
7) Dealing with Contingencies
Contingencies are part of any real estate transaction.
They include appraisal, financing, and a home inspection.
If the appraisal comes in low, there will be a problem. This is called an appraisal gap.
The seller might have to lower the price, or they buyer may have to come up with the difference in cash.
8) Waiting for Underwriting and Financing
- Average time for closing on a house is 45 days from the date of the signed purchase agreement. (Source: Zillow)
- The average closing costs for a buyer are 2-5% of the purchase price of the home. (Source: Investopedia)
The reasons closing takes so long is because of the buyer waiting on the mortgage approval. Cash buyers can close in days, not weeks.
After completing the purchase agreement and signing the paperwork involved in buying a new home, you will need financing from a mortgage lender to cover the purchase price of the home.
Getting the financing is one of the reasons closing on a home takes so long.
A loan officer will determine the loan approval.
Waiting for underwriting and financing involves evaluating your financial situation (including evaluating your credit score) to determine if you qualify for a mortgage loan at an interest rate that works best for your budget.
The underwriting process will take weeks to complete. This cannot be done overnight
9) Planning for Homeowner’s Insurance
You must plan for homeowner’s insurance since you are know the homeowner.
Most mortgage lenders require it.
Research different insurance providers and compare policies to find the best fit for your needs.
Determine the coverage you need based on location, property value, and risks specific to your area.
Preparing for Closing Day
Get the closing documents in advance.
Carefully reviewing the closing disclosure and verifying all fees are accurate is paramount.
If you have questions, called the title company or ask you real estate agent.
10) Ordering Additional Inspections, If Necessary
As a cash house buyer, it’s always a good idea to order additional inspections for your new home purchase.
These inspections can include testing for termites, radon gas, or mold.
By conducting these additional inspections before finalizing the purchase, you can identify potential issues early on and prevent costly repairs later on.
Just remember to coordinate with your realtor and the seller before scheduling any inspections to ensure everyone is on the same page.
It’s also important to review your purchase contract thoroughly since some contracts may require sellers to address defects revealed during the inspection process.
11) Negotiating Repairs
During the closing process of a new home purchase, negotiate any necessary repairs with the seller.
This step involves identifying necessary repairs and working with the seller to have them completed before closing day.
To ensure a fair deal, consider obtaining repair estimates from a trusted third party such as a real estate agent or home inspector.
Be flexible and willing to compromise on minor repairs if it means avoiding delays in closing or losing the sale entirely.
If necessary, you can also ask for a credit towards closing costs instead of having repairs completed by the seller.
12) Keeping Tabs on the Appraisal
As you approach the finish line of your real estate transaction, keep tabs on your home’s appraisal value.
This might come up and surprise you the day before closing. It’s not unheard of to have appraisal problems.
A low valuation can impact multiple factors such as title insurance, paperwork, and closing costs.
Partnering with an experienced appraiser licensed in your area enables you to accurately review their report and communicate any concerns with your real estate agent or lender.
Don’t hesitate to challenge any valuations that seem off [if you are the seller], it could potentially save you thousands of dollars over time.
Negotiating any Appraisal Gaps
During the house closing process, negotiating any appraisal gaps.
In case of a low appraisal, be prepared for negotiations with the seller. You can consider alternative financing options such as private mortgage insurance or a higher down payment.
13) Navigating the Final Walk-through
During the final walkthrough of your new home sale, it’s important to pay attention to every detail to avoid any defects or surprises.
Start by reviewing all agreed-upon repairs and checking for any new damages.
Bring along a checklist of items to inspect such as appliances, plumbing fixtures, and window coverings.
Communicate with your real estate agent or attorney if you discover any issues during this process to ensure that they are resolved before signing any closing documents.
By being prepared and attentive during the final walkthrough with your realtor or closing agent, you can reach the finish line smoothly.
Once you grab the keys you can celebrate.
14) Scheduling Transfer of Utilities
During a real estate transaction involving closing on a new home purchase, transferring utilities can be overlooked easily.
Schedule transfers with all necessary utility companies ahead of time.
Create a detailed list of each company and their contact information while keeping in mind updating billing information and setting up automatic payments for future convenience.
Confirm that all transfers have been completed successfully before closing day arrives.
Things to bring on closing day
On closing day, it’s prepared and attentive so that everything runs smoothly.
Arrive with a government-issued ID, cashier’s check or wire transfer confirmation for down payment and closing costs, and take notes of important dates.
Use this time to clarify any remaining questions about title insurance, paperwork, down payments, closing costs, real estate agents, lenders, or mortgages.
Make sure you understand the terms of the purchase agreement, escrow account, disclosure statements, appraisal report, and deed.
Don’t forget about home inspections and contingencies like termites or defects
Understanding Homeownership Expenses
Closing on a new home involves more than just signing paperwork and paying a down payment. There are many hidden expenses to consider beyond the purchase price.
For instance, you’ll need to pay for title insurance and title fees during the closing process.
- The average cost of a title search is $150-$250. (Source: HomeAdvisor)
Homeowners will also have ongoing expenses such as property taxes and maintenance costs.
That’s why it’s important to create a comprehensive budget for your new home that includes all of these expenses.
By doing so, you’ll be better prepared for the long-term financial responsibilities that come with homeownership.
Dealing with Documentation Delays
There are steps you can take to make things smoother.
Make sure all required documents are completed accurately and on time is vital.
Both the buyer and seller will want to stay on top of this.
Is there a minimum down payment required to close on a house
Yes buyers will have to put some money down when purchasing a house. It often ranges from 3% to 20% of the purchase price depending on the type of mortgage.
When is the first mortgage payment due
The first mortgage payment is typically due on the first day of the month following one full calendar month after the closing. For example, if you close on your home purchase on April 20, your first mortgage payment would be due on June 1.
In closing , closing on a house is a complicated process that involves multiple steps and paperwork.
Have the right lender and escrow account open, review all the necessary documents, get a home appraisal, and negotiate repairs if required.
Keeping track of everything and staying organized is key to ensuring a smooth closing process.