What does it take to reach closing day on a house? Use this house closing timeline to prepare yourself for this final step of the homebuying journey.
What does it take to close on a new house?
After house hunting and comparing home loans, closing on a mortgage is the final step in your journey towards home ownership.
So here’s what you can expect if you’ve never done it before:
What Happens During the Home Closing Process?
Closing on a home is the official process of a seller transferring ownership of their property to a buyer.
Closing processes are different in every state — and they even differ between cities in the same state — but they all require signing paperwork and exchanging money to make the sale complete.
Your realtor or mortgage loan agent will walk you through the closing process and give you a checklist of all the documents you’ll need to submit along the way.
This is a general closing process timeline you can follow to prepare yourself for what comes next:
First, the Seller Accepts Your Purchase Offer with Contingencies
When you’re ready to purchase a house, your real estate agent will draw up a purchase offer, or purchase agreement, to give the seller.
The closing process kicks off as soon as the seller accepts your purchase offer.
Your purchase offer will have contingencies, or conditions that need to be met, before the deal is finalized.
Contingencies give buyers a way to back out of the purchase if they discover unfavorable facts about the property during the closing process.
A home inspection is the most common contingency.
So if something serious surfaces during a home inspection, buyers with a home inspection contingency can walk away from the deal despite their initial intent to buy.
Since all contingencies must be satisfied before the purchase can go through, sellers have a chance to fix the situation or improve their property to meet those contingencies.
To show you’re serious about the house, sellers often deposit what’s known as earnest money to an escrow account after their purchase offer is accepted.
You’ll Deposit Earnest Money Into an Escrow Account
Escrow is an account held by a neutral third party in your mortgage process.
After the seller accepts your offer, you’ll deposit between 1% and 3% of the sale price of the home into the escrow account.
Known as Earnest Money, or a Good Faith Deposit, this cash assures the seller you’re going through the mortgage process to purchase the house. It also prevents sellers from accepting other offers while you finalize your home loan.
Earnest money will either go towards your closing costs or your down payment and will remain in escrow until closing day.
If you decide not to purchase the house due to issues other than the contingencies in your purchase offer, the seller keeps the earnest money.
But if the seller backs out of the deal, or refuses to meet your contingencies, you can take back your purchase offer and your money will be returned.
During this time, your mortgage lender will be handling all the details of your loan approval.
The Mortgage Loan Origination and Underwriting Begins
Besides giving you a budget and a strong financial leg to stand on, when you get pre-approved for a mortgage, you also speed up the origination and underwriting step of the home closing process.
When a seller accepts your offer, your lender will begin originating and underwriting your loan, which means your lender will go over your:
- Mortgage application
- Credit report
- Prior tax returns
- Proof of income and assets (such as your pay stubs or bank accounts)
Pre-approved buyers get the heavy lifting of this background vetting done early on so closing happens much sooner than those who start the home loan process later.
Within a few days of your mortgage application, you’ll receive a loan estimate with information such as your:
- Loan details like the interest type (fixed-rate or ARM), term length, interest rate, and purpose (buying/refinancing).
- Projected monthly payments including your mortgage, interest, insurance, taxes, and other fees.
- Closing costs, or the total of your down payment and all the other charges related to purchasing your home.
The biggest issues delaying the home closing process occur during this underwriting period. Closing delays are most often a result of:
- The property receiving a low appraisal
- Mistakes in a buyer’s credit report
- Additional debts, judgements, or liens in the buyer’s credit history
- Confusion over the property’s title
- Missing documents or insurance information
Before making their decision, your lender will request proof that the property you’re planning to borrow money to purchase is a sound investment. Home inspections and appraisals will show them the facts.
Order a Home Inspection and a Pest Inspection
Most mortgage lenders require a home inspection before they approve a loan. It’s also the most common contingency in purchase offers.
Professional home inspections will check for structural problems or potential building code violations which will need to be resolved or accounted for before the sale goes through (as long as you’re not buying a fixer upper).
The seller can either fix found issues or lower the sale price for you to remedy these problems before the closing process is finalized.
If these issues aren’t resolved and you have a home inspection contingency, you’ll be able to walk away from the deal without losing your escrow money.
A separate requirement just as important is a pest inspection.
Since wood-destroying pests like termites and carpenter ants cause such severe damage and are expensive to get rid of, you’ll want to know if your home has a problem.
If an inspection uncovers an infestation, your seller again has a chance to fix the issue or adjust the purchase price so you can take care of it without spending more than your loan affords.
Your home will also need to be appraised to make sure your lender doesn’t dole out more than the house is worth.
Your Lender Will Also Want a Home Appraisal
Mortgage lenders will order a home appraisal so a neutral third party can determine the true market value of the house you want to buy.
If your lender thinks the purchase price is fair, you’ll move forward in the closing process.
But if your lender thinks the sale price is too high, they may not approve your loan.
You may have to come up with the difference between what the house is worth and what the sellers want on your own, which can get expensive.
Many purchase offers contain a home appraisal contingency so you can walk away from the property if it’s appraised lower than asking price.
But you can also ask the seller to negotiate a price closer to the appraisal to keep the deal moving forward.
Next you’ll want to cover your bases with a title search and insurance.
Perform a Title Search and Shop for Title Insurance and Homeowners Insurance
Your mortgage lender will either require or strongly suggest you have:
- A title search performed to examine public records and confirm the property you’re about to buy doesn’t have any other legal claims on it, like from a relative of the seller or debt collecting agencies.
- Title insurance to protect you and your lender from unforeseen costs that may come up with the buying and transferring of the property. It also protects your equity from potential future claims.
- Homeowners insurance that equals at least the balance of your mortgage. A standard homeowners insurance policy protects both you and your lender from financial losses should something happen to your home like a fire or a tree falling through your roof.
When all these steps are taken care of, you should receive a closing disclosure when your loan is officially approved.
Read Over Your Closing Disclosure After Approval
After your loan is approved and a few days before your closing, your lender will send a closing disclosure for you to review. This document contains the terms of your loan and will include final closing costs and other fees or charges.
If there’s anything you’re confused about or need clarification on, ask now before you sign all the paperwork on closing day.
Schedule a Home Closing Meeting
You’ll receive a formal home closing notice with the date, time, and location of your closing meeting. Your notice will also contain information about what you need to bring to the meeting, like a photo ID, list of your prior residencies, and a payment plan for your closing costs.
Before you sign all the paperwork and transfer funds on closing day, you’ll want one final walk through of your new home before you make it yours.
Perform a Final Walk Through of the Property
Within 24 hours of your scheduled closing time, take one final walk-through of the house.
You’ll check to make sure:
- The house is the same as when you made your purchase offer. Appliances, light fixtures, furniture, etc. which were supposed to be included with the sale should not be missing.
- There’s no new damage to the house which may have occurred after your home inspection.
- Everything’s in working order (agan, if you’re not buying a fixer upper). Check all the outlets and faucets, make sure the appliances are in working order, test that power and HVAC are on, etc.
- Repairs were made by the seller, if you had contingencies for them to do so as part of your purchase offer. If you notice these have not been handled correctly, you can push back closing day until they are.
If everything seems up to your expectations, you’ll be all set for closing day.
What to Expect on Closing Day
Closing day on a house is when you’ll meet with everyone involved in the selling/buying of your home to sign documents and make the transfer of the property’s ownership complete.
You could find several people at your closing meeting, such as:
- A closing agent
- The seller
- The seller’s realtor
- Your realtor
- An agent for your lender
- A representative from the title company (to give written ownership of the property)
- Real estate attorneys
The closing agent will run your closing meeting and make sure all documents are submitted and escrow payments distributed.
Don’t be shy about asking your lender for copies of your closing documents before closing day. This gives you more time to review, ask questions, and understand everything you’re about to sign without the stress of time or people rushing you.
You may also want to hire a real estate attorney to help out with all the dense paperwork you’ll need to read over and sign.
Closing documents may include a:
- Mortgage note, or the document stating your promise to pay back your mortgage loan in the agreed-upon time with interest.
- Deed of trust. This backs up the mortgage note and allows your lender to take your home back if you stop making payments.
- Certificate of occupancy. If you’re purchasing new construction, this legal document says your home is safe for occupancy. You’ll still need to sign one for an existing home to state your intentions and what happens if you use your home for other purposes not stated.
- Escrow disclosure. This describes how your lender will distribute the money in your escrow account and shows when/how much each escrow item (like property taxes, insurance, HOA dues, etc.) will be paid.
You’ll also play closing costs during this meeting.
Pay Closing Costs
Buyers and sellers often split closing costs, which are the fees associated with the buying and selling of the property.
Closing costs may include:
- Home inspection and pest inspection
- Home appraisal
- Title insurance
- Recording fees
- Lender fees
- Realtor fees
- Credit report check
- First month’s interest
- Homeowners association dues (if you’re buying in a community with an HOA)
While you may be charged realtor fees to handle the documentation, the seller pays commission for both their real estate agent and yours so you won’t have to.
After all documents are signed and the financials are set, you’ll be given the keys to your new home as the official owner.
From start to finish the home closing process can take 30 to 45 days or longer. Buyers who are preapproved for a home loan generally wait less than this.
All you have to do after closing day is move in and throw a housewarming party to welcome everyone to your new home sweet home and meet all your neighbors.
Where to Go Next
The home closing process is the final stretch in your home buying adventure.