Closing on a house: What to expect

Closing on a house marks the beginning of a new chapter in your life. But this crucial final step toward homeownership includes a lot of documents, signatures and fees. Here’s a closer look at what happens at closing day — and during the entire home closing process.

What is the closing process?

Closing day is the final step in what is often a lengthy process – also called “closing” – associated with a real estate sale. It can take a couple of months between signing a purchase agreement and reaching closing day. For homebuyers, closing is the day they officially take over ownership of the property and receive the keys. For sellers, closing is the day they’ll receive proceeds from the sale.

During the closing process, all parties complete many important tasks. Unless they’re paying in cash, the prospective buyer will secure homeowners insurance and the mortgage needed to purchase the property. There will be an appraisal of the home and an independent third-party inspection of its condition. A title company will also conduct a title search to ensure there are no claims on the ownership of the home.

The buyer and seller – via their agents – will settle any discussions of costs, repairs and fixtures. The buyer will do a final walk-through of the property. Usually, by closing day, the seller has packed up and departed.

On closing day itself, the homebuyer must sign a lot of paperwork that finalizes the deal. Often, many other parties are present for closing day, including the seller, the lender, real estate agents, the closing agent and an attorney who will review the paperwork being signed.

How long does it take to close on a house?

The timeline between making an offer and closing a sale can vary. For home purchases financed with mortgages, the average time to close is 44 days, according to ICE Mortgage Technologies, a mortgage advisory and technology platform. Closings can be as quick as 30 days, though, especially in all-cash deals.

Steps to prepare for closing on a house

For homebuyers, there are many tasks to complete during the closing phase. At the same time, many steps are simultaneously handled by your lender and your real estate agent, who help coordinate with the proper parties. Here’s what you need to do to get ready for closing:

1. Get a home inspection

Getting a home inspection is essential. Even the most beautiful houses can have hidden issues.

During a home inspection, a contractor or professional inspector will check the home for major issues, like foundation cracks, leaks, problems with the plumbing or electrical system and potential safety hazards. Depending on the results of the inspection, you might decide to back out of the deal, or you can ask the seller to fix the issues as a sale contingency.

2. Consider hiring a real estate lawyer

Buying a house isn’t just a transaction between the buyer and seller. It’s also a relatively complex legal process. Although it’s usually optional, you may benefit from hiring a real estate attorney, which can help you avoid unexpected issues down the line.

3. Buy homeowners insurance

Most lenders will require you to purchase homeowners insurance before they’ll finalize your loan. Homeowners insurance policies provide financial protection from losses related to events like fires and wind damage.

Specific insurance requirements vary based on where your new home is located. In some parts of the country, you may also need to obtain coverage for flooding or earthquakes.

4. Submit required documents to your lender

During the closing process, your lender may request additional documentation to verify your sources of income, current debt levels, or even your employment history, particularly if there are any gaps. Respond to these requests quickly in order to avoid potential closing delays.

5. Negotiate your closing costs

Although closing costs can be expensive, some costs are negotiable. See if your lender is willing to lower the origination fee or waive an application fee. If lender’s title insurance is required, ask your mortgage company if you can shop around to find the best rate rather than paying a fixed fee from the insurance company of their choice.

6. Confirm your closing date

The next step is to confirm your closing date. This is the date when the seller will be fully moved out of the home, and you will be able to move in. Keep in mind that the closing date is usually at least one month after the purchase offer has been accepted. It can take even longer if you run into unexpected hurdles during the closing process. Once you have confirmed the closing date, you can start packing your things and phoning moving companies.

7. Get your cash ready for closing

On closing day, you’ll be expected to bring a cashier’s check to cover your closing expenses. (In some cases, you may wire money instead.) These expenses typically include closing costs associated with your loan, your down payment and any prepaid interest or property taxes that are due, all of which should be detailed in your Closing Disclosure document. Expect to receive a Closing Disclosure about three days before the scheduled closing. You can compare this with your Loan Estimate to ensure there are no unexpected changes.

8. Do a final walk-through

Even if your initial home inspection went smoothly, it’s still a good idea to do a final walk-through right before you move into the new house. It is always possible that damage could have occurred between the first inspection and your move-in date. During the final walk-through, make sure the seller made all the necessary repairs and removed everything that was not included in the purchase and sale agreement from the house and the property.

9. Sign your closing documents

At the closing, you will receive numerous important documents. It could be upwards of 100 pages, so make sure to ask your real estate attorney or Realtor to explain what each document is for. Here are some of the documents you can expect to receive:

• Loan estimate: This document contains important information about your loan, including terms, interest rate and closing costs. Make sure all the information is correct, including the spelling of your name.
• Closing disclosure: Like the loan estimate, the closing disclosure outlines details of your mortgage.
• Initial escrow statement: This form contains any payments the lender will pay from your escrow account during the first year of your mortgage. These charges include taxes and insurance.
• Mortgage note: This document states your promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if you fail to make payments.
• Mortgage or deed of trust: This document secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.
• Certificate of occupancy: If you are buying a newly constructed house, you need this legal document to move in. Ask for a copy of the title policy and survey, as well.
• Purchase agreement: This is a binding contract that spells out the terms of a real estate transaction. Signing it finalizes the purchase of a property.

What to bring to a house closing

All parties involved in the transaction should be prepared to bring a photo ID and professional representation, such as their agent or attorney, to the closing table.

Sellers should be prepared to produce documentation of any repairs that have been ordered following the inspection. They should also have the keys to the property to hand over.

Buyers will need to bring the funds to cover closing costs, which are often conveyed at closing by a cashier’s check. At this time, buyers should also provide proof of homeowners insurance.

What happens at closing?

On closing day, you will have two primary responsibilities: signing legal documents and paying closing costs and escrow items. It is important to read all of these legal documents carefully so that you know exactly what you’re agreeing to. Here’s a brief breakdown of what to expect:

1. First, you will provide identification documents including your driver’s license or passport, a marriage certificate (if you’re purchasing the home with a spouse) and proof of homeowners insurance for your new property.
2. You will then sign several documents related to the property sale. This will include the closing disclosure, the mortgage document securing your new home as collateral on the loan, a promissory note serving as your promise to repay the lender and the property deed, which transfers legal ownership of the property.
3. You will pay closing costs and escrow items at the closing. These fees include property taxes, HOA fees if they apply and utility bills. You will likely need a certified check or cashier’s check for this transaction, or you may be able to wire funds directly from your bank. Personal checks are often not accepted.
4. Unless there are contingencies in your purchase agreement allowing the previous owner to stay for a period of time, you should receive keys to your new home after signing the paperwork.

What causes closing delays?

A number of things can hold up your closing, including a low appraisal, unmet contingencies, title problems and a foul-up with the mortgage funds.

Low appraisal

An appraisal is a professional assessment of the worth of the home you’re interested in buying, ordered by the mortgage lender. The purpose of an appraisal is to ensure that the sale price of the home aligns with its fair market value. This step has the potential to impact closing if the home appraises for less than the purchase price — and/or the amount you’re seeking to borrow. The lender won’t loan you more than the appraisal value. So if you don’t have the cash to make up the difference, called an appraisal gap, your deal could be tanked.

Failure to secure financing

If you don’t secure a mortgage — because something changes in your finances or the money doesn’t come through or is delayed for some other reason — it could slow down your closing or cause it to be scrapped entirely.

Unmet contingencies

Contingencies in a real estate contract allow either one of the parties to back out of the deal if certain specified conditions are not met. This could include a home inspection that reveals serious problems with the home or the purchase being contingent upon the buyer securing financing (see above) or the seller acquiring a new home. If these or other contingency-related challenges arise, it can stall the deal or cause it to fall apart altogether.

Title issues

In order for any real estate sale to close, the title must be clear — that is, free of any claims or doubts about ownership. That means if there is any sort of lien or claim to the property, the closing cannot proceed until that issue is cleared up. The Internal Revenue Service or the state government might place liens on a property if the seller owes back income or property taxes.