The Closing Process: What Home Buyers Can Expect on the Big Day
by Margaret Heidenry
The hardest parts are over: You’ve found that perfect home in a haystack of listings, negotiated a deal you’re happy with, and secured a mortgage—and you’re now in the home stretch of the home-buying process. Just one more critical hurdle lies ahead: the home closing. Also known as “settlement” or “escrow,” this is a day when all involved parties meet to make this transaction official.
To make sure you’re fully prepared, here’s what to expect from the closing process, step by step.
Step No. 1: How to prepare for a closing
Review your closing disclosure form: If you’re getting a loan, one of the best ways to prepare is to thoroughly review your HUD-1 settlement statement.
“This helps ensure the buyer understands the terms of their loan,” says Ben Niernberg, executive vice president of business development and operations at Proper Title.
The HUD-1 settlement statement outlines your exact mortgagepayments, a loan’s terms (such as the interest rate and term) and additional fees you’ll pay, called closing costs (which total anywhere from 2% to 7% of your home’s price). Compare your HUD-1 to the good-faith estimate your lender gave you at the outset; make sure they’re similar and ask your lender to explain any discrepancies.
Thanks to new regulations put in effect in October 2015 known as TRID (which stands for TILA-RESPA Integrated Disclosure), you will receive your HUD-1 three days before closing so that you have plenty of time to check it over. (Before TRID, home buyers received this form only 24 hours ahead of time, which resulted in a lot more last-minute surprises and holdups.)
Do a final walk-through: A buyer’s contract usually allows for a walk-through of the home 24 hours before closing. First and foremost, you’re making sure the previous owner has vacated (unless you’ve allowed a rent-back arrangement where they can stick around for a period of time before moving). Second, make sure the home is in the condition agreed upon in the contract. If you’d had a home inspection done earlier and it had revealed problems that the sellers had agreed to fix, make sure those repairs were made.
If you find an issue during your walk-through, bring it up with the sellers as soon as possible. There’s no need to panic; at worst you can simply delay the closing until you resolve it.
Step No. 2: What to bring to closing
All your paperwork: You’ll want to bring proof of homeowners insurance, a copy of your contract with the seller, your home inspection reports, anything the bank required to approve your loan, and a government-issue photo ID. (Note to newlyweds who just changed their name: That ID needs to match the name that will appear on the property’s title and mortgage.)
Your down payment: You will already know from your disclosure form exactly how much you’ll have to cough up for a down payment and closing costs. Yet since a personal check won’t cut it, be sure to ask before closing whether you should wire transfer those funds or if you’ll need to bring a cashier’s check. Also bring your personal checkbook to closing, since that’s typically fine to pay smaller fees and may come in handy in case any unforeseen expenses crop up.
Step No. 3: What to expect at closing
A bunch of people: Exactly who will be present at a closing (and where it’s held) depends on the state you live in, but there are certain supporting characters you can usually expect to make an appearance. The cast includes the home seller, the seller’s real estate agent as well as your own, buyer and seller attorneys, a representative from a title company (more on that below), and, occasionally, a representative from the bank or lender where you got your loan.
Title clearance: Before you can own or “take title” to a home, most lenders will require atitle search of public property records to make sure there aren’t any liens or issues with transferring the property into your name (which is rare, but if something does crop up, it’s better to know that upfront).
Signing your name a lot: You’ll be putting your John Hancock on a pile of legal documents (so be prepared for a mild hand cramp if you’re not used to writing in cursive).
A few curveballs: Be prepared for things to go awry at the closing, like someone gets stuck in traffic, a document is missing, or a name is misspelled. But don’t stress, simply do what’s in your power to make the day go off without a hitch. For instance, don’t schedule something two hours after the closing is supposed to start in case your closing runs over.
If all goes well (as it usually does), you will eventually leave your home closing with a stack of documents (which you should save) and the keys to your new home (finally!).