The Best Guide There Is About Closing on a House
Signing a purchase agreement to buy or sell a home can be a huge relief. It can feel like the next chapter of your life is about to begin, and you deserve to celebrate the moment. But even after you reach an agreement with someone, the sale isn’t quite complete until you officially close.
With all the various steps taken together, closing on a home adds up to roughly as much effort as going under contract. In this guide, we’ll keep you ahead of the game by going through the many details of the home closing process. Though some details may seem more important than others, missing any one of them can jeopardize getting to the closing table.
What to Expect During Your Home Closing
There’s typically a period of several weeks between signing a purchase agreement and the final home closing. At first, that closing date may seem unreasonably far away, but there’s an important reason it takes that much time – you’ll need most, if not all, of those days to get through your to-do list before closing! The specific tasks you might need to complete will depend on whether you’re the buyer or seller.
• Handle home repairs: Most buyers will want the home inspected by a professional home inspector. The inspector will be looking to determine if the property has any material flaws that need to be corrected before closing. If there are, you will need to make the necessary repairs or provide a price adjustment.
• Hire a closing agent: Depending on what is customary in your state, you may need to choose an attorney or title insurance company to execute your closing. If your buyer is getting a mortgage, the lender will require a mortgage policy of title insuranceto approve the loan, and the title company will also perform the closing.
• Monitor the buyer’s progress: Hopefully your buyer has already been approved for a mortgage, which typically speeds up the official loan application process. Whether your buyer has been approved or not, you should monitor the progress of their home loan to make sure everything is on track for the closing.
• Arrange your move: It’s wise to start preparing for your physical move after the contract has been signed. Consider packing, choosing a moving company and renting a storage space if needed so you don’t need to rush when the closing date comes around.
Looking for handy checklist to help organize all your to-dos? Our blog has you covered.
• Apply for a mortgage: You should get a mortgage approval before making an offer on a property. But once the contract is accepted, you must make a formal loan application. Since the complete mortgage approval process can take several weeks, you’ll need to do this immediately after signing the contract.
• Hire a home inspector: The mortgage lender will arrange for the appraisal to be completed. But you’ll be on your own for the home inspection. You’ll need to choose a home inspector and have the inspection completed as quickly as possible after signing the contract. Most contracts provide a time limit on the home inspection.To learn more, check out our 10 Tips for a Smooth Home Inspection.
• Stay in contact with your mortgage lender: In a perfect world, every closing would happen quickly. In the real world, it doesn’t always work out that way. You’ll need to do your best to supply all requested documentation to your lender as quickly as possible and follow up regularly to make sure you’re on track for closing.
• Get your closing funds together: The lender will provide you with an estimate of closing fees, including the amount of money you’ll need at the closing table. Make sure you have sufficient funds in a single bank account to provide the cash needed to close. In most cases, you’ll need to provide certified funds or a cashier’s check, which is why the money needs to be in one place.
• Arrange your move: This is one step that buyers and sellers have in common. As soon as you sign a purchase agreement, it’s a good idea to start packing and organizing your move so you can settle into your new digs as soon as possible.
How Long Does a Home Closing Take?
In most markets, it’s safe to assume that it will take about 30 days between contract signing and closing on the home. But if the housing market is particularly busy, lenders, appraisers, home inspectors and title agents can get backed up. If that’s the case, the home closing could extend to 45 to 60 days.
As far as the actual closing on closing day, it generally takes about one hour. It can easily take longer if there are questions about the documents, and you should anticipate some minor wrinkles.
Normally, the buyer and seller will close at the same time. However, there are some exceptions. For example, if the buyer and seller are in different states they may sign at different times.
How Much Does Closing on a Home Cost?
There are closing costs that are unique to the buyer and seller. In most cases, the majority of costs will be on the buyer’s side. This is due to lender fees that the buyer must pay in connection with the mortgage or deed of trust.
Whether you’re the buyer or seller, you should be able to find out what the closing costs will be in advance from either the lender or the closing agent. Below is a breakdown of what to expect.
Buyer Closing Costs
This virtual laundry list of fees can be more than a bit intimidating, but don’t worry. The majority will be grouped together by your lender. Generally speaking, as a buyer you can expect the closing costs to be from two to three percent of the new mortgage amount. Below are the most common fees that will need to be handled.
• Loan origination fee. This is paid to the lender and is typically one percent of the loan amount or a fraction of one percent.
• Loan discount fee. This is an optional fee, paid to the lender if the buyer wants to reduce the interest rate on the loan. For example, by paying a one percent fee, the loan rate may be reduced by 1/8 of a point.
• Appraisal fee. This generally ranges from $300 to $500.
• Credit report fee. The lender will charge a fee of $10 to $50 to order the credit report from a third party.
• Lender’s inspection fee. Should the property require repairs, the lender will send an inspector to make sure they’ve been completed. The fee can range from $50 to $200.
• Tax service fee. The fee is $25 to $75, and it is paid to a third-party service to determine that all previous taxes on the property have been paid.•
• Wire transfer fee. The funds for your loan closing will arrive by bank wire. The fee for this is usually $15 to $35.
• Closing or attorney fee. This fee can be charged by the attorney or a title company as payment for their services. It can range from $300 to $1,000 depending on your location and the amount of work done by the closing agent.
• Document preparation fee. This is another fee charged by either the attorney or the title company as part of its charge for handling the closing on your loan.
• Recording fees. Your mortgage documents will need to be recorded at the county courthouse. The fees will depend on charges imposed by either the county or the municipality where the documents are recorded.
• State, county or municipal taxes and stamps. Many jurisdictions impose taxes on new mortgages. They’ll be based on a percentage of the loan amount and are collected at closing. They can range from a few dollars to a few thousand dollars.
• Flood certification. Lenders obtain a flood certification to determine if the property is in a flood zone. The certification usually costs about $20.
• Pest inspection. The lender will require a pest inspection to make sure the property has no infestations or related damage. The fee is typically less than $100.
• Courier or postage fees. Any fees paid to third parties to deliver packages or paperwork, including the cost of certified or registered mail, will be included in your closing costs. These fees are usually very minor, but it will depend on how much special handling is required during the closing process.
• Title search. This is performed by a title company to determine if there are any unrecorded liens against the property. It can range from $200 to $400.
• Title insurance mortgage policy. It is a requirement by the lender for the buyer to purchase this policy. In case the title search misses any liens, this policy will insure against them. Expect to pay several hundred dollars for this policy.
• Owner’s title insurance policy. This is an optional charge. The mortgage title policy protects the mortgage lender against unrecorded liens. But with an owner’s title policy, you’ll be protected for the entire time you own your home. It is highly recommended. The cost is typically $200 to $30
• This is typically required only when there’s a question about property lines. If it is required, it can cost $300 or more.
The buyer will also need funds to set up the escrow for taxes and insurance. Exactly how much depends on the amount of taxes and insurance on the property. In most locations, at least three month’s property taxes must be collected, in addition to a one-year paid-up home owner’s insurance policy, plus two months premiums.
Seller Closing Costs
The list of closing costs for sellers is much shorter than it is for buyers. There’s no rule of thumb for what it will total since it varies widely by state. In most cases, the list will include the following costs.
• State, county or municipal transfer taxes: Most jurisdictions impose these taxes, and they’re based on a percentage of the sale price. It will vary by location.
• Seller’s attorney: Your attorney will usually charge between $200 to $400 to represent you in the transaction.
• Miscellaneous fees: There may be small fees for couriers or recording paid on behalf of the seller.
There’s one other set of costs the seller may need to cover, which will depend on what is customary in the area, and that’s seller-paid closing costs. The seller may agree either to pay part of – or all – of the buyer’s closing costs, as an inducement for the buyer to purchase the property. This can be either a flat dollar amount or a percentage of the mortgage amount, like three percent.
What NOT to Do Before Closing
Clearly, there’s a lot you’ll need to do before your closing day. But just as importantly, there are certain activities you should not engage in if you want to make sure everything stays on track.
Buyer Missteps to Avoid
• Ignoring lender requests. Failing to respond quickly to your lender’s requests for additional information can hold up your mortgage application and delay the closing. It’s important to respond to your lender quickly and check in regularly to make sure the loan process is on schedule.
• Incurring new debt. Once you signed the contract, you shouldn’t borrow money anywhere. The lender will pull a new credit report just before closing. If your loan qualification was tight to begin with, a new loan could cause your approval to be withdrawn.
• Moving money around. When it comes to cash to close, lenders like things to be simple. All funds needed for closing should be sitting in a single bank account doing absolutely nothing until closing. Large transfers could cause the lender to suspect you’ve taken a new loan.
Seller Missteps to Avoid
• Losing sight of the buyer’s mortgage application. If your buyer needs a home loan, you’ll want to ensure that everything is on track. And problems or delays can result in a closing being pushed back or even falling through.
• Being uncooperative with the appraiser or inspector. Most home sales are dependent on an inspection and appraisal. It’s best to cooperate as much as possible so they can be completed quickly.
• Refusing to complete required repairs or adjust the sale price. Following the inspection and appraisal, you may need to take action based on the results. Few things will sink a closing faster than a seller not agreeing to remedy or compensate needed repairs.
What to Expect on Closing Day
As for the closing day itself, each party should plan to come to the closing office early. Be sure to bring your checkbook to handle necessary fees and any documents required by the closing agent.
If a closing has been properly prepared for in advance, it should be little more than a signing ceremony. It’s possible to be in and out within an hour and avoid any surprises that could derail things. That should be the goal of both the buyer and seller, and what each is preparing for as soon as the ink is dry on the contract.
Looking to find out more? Request Amrock’s For-Sale-by-Owner Information Guide.