What Are the Steps in Closing on a House?

Completing the steps to closing on a house may take some time, but the result is worth it when you finally move into your dream home. Since this is probably the biggest purchase you’ve ever made, it’s essential to understand each step in the process.

Get Preapproved for a Mortgage

The first steps to buying a home occur before you’ve looked at a single dwelling. While it isn’t essential to get preapproved for a mortgage before house hunting, it’s a wise idea. You don’t want to lose a house because your lender wouldn’t approve the amount of money needed for the mortgage. Once the lender verifies your income and checks your credit, you’ll have approval for a specific loan amount for a certain amount of time. The latter is usually about 90 days.

Sign a Contract

Once you’ve found the house you want, made an offer and had the seller accept it, you’re under contract. Even though you both sign that home buying contract, there’s considerable time between the signing and the closing depending on arrangements made with the seller. The contract will likely have a few or several contingencies, which may include the ability of the buyer to secure financing or sell their current home. Although the house is no longer on the market, the buyer has a certain period to complete their obligations. Many contracts end up “falling through,” and the seller can put the house on the market or accept a backup offer from someone who put in a bid for the house after yours was accepted.

Not all states require that an attorney represent buyers and sellers in a real estate transaction, but it is well worth spending the money. The attorney will review your contract before signing and may add specific contingencies. If you hire an attorney, their office may handle other parts of the real estate closing process, such as arranging a title search.

A sales contract usually includes a closing date, but that is subject to change depending on whether financing and other issues are resolved. While the closing date is when the property transfers from the seller to the buyer, it is not necessarily the date the buyer moves in. In some circumstances, the seller may arrange with the buyer to stay in the house for a certain period until their new home is ready to move into and pay the buyer rent during that time.

The Escrow Period

In between signing the contract and the real estate closing is the escrow period. This usually ranges from one-to-two months if you are financing the property, although it is much faster in a cash purchase. A third party, an escrow agent, will hold your good faith deposit money, known as earnest money until the property closes. The earnest money amount is generally between 1-and-3 percent of the home’s purchase price, so for a $300,000 home, expect to pay between $3,000 and $9,000 in earnest money. That amount is subtracted from what you owe on the day of closing.

An escrow agent’s duties may also include ordering a title search, obtaining the deed from the seller who transfers the house to the buyer and later recording that deed at the county records office after the closing takes place. The escrow agent will also figure out what the buyer and the seller each owe for various aspects of the closing process, such as homeowner’s association fees or property taxes.

The Home Appraisal

Your lender will require a home appraisal to ensure the property is worth what you have agreed to pay for it. The lender may arrange the appraisal, but you must pay for it. The appraiser looks at the property inside and out, then researches similar homes in the area that sold recently to find comparables, or “comps.” If the appraisal comes in considerably lower than the agreed price, your contract should allow you to break the deal. You can negotiate with the seller for a lower price, which the seller may accept since other appraisals will likely come in at the same amount. In those rare cases where the appraisal comes in higher than the agreed-upon price, you bought yourself a bargain.

The Home Inspection

As the buyer, you pay for a home inspection. You can waive this inspection, but that’s not a good idea. The home inspector examines the property thoroughly and gives you a report on its condition and any needed repairs or code violations. If the house has a major deficiency, such as a cracked foundation, you should have a contingency in the contract allowing you to back out of the deal.

Title Search and Title Insurance

Unless your house has a clear title, the lender will not provide funds. Even if you are in the enviable position of paying cash for a property, you don’t want to buy a house with a murky title. A title search, performed by a title company, examines the history of the property and looks for any other claims on it, such as tax liens or judgments. These issues require resolution before the closing takes place. The title search also ensures that the party representing themselves as the sellers are the actual owners and no one else has a claim. At the closing, you will pay for title insurance, which protects you in case a title issue comes up that was not discovered during the title search process. This one-time fee protects your title for as long as you own the home.

A Final Walk-through

Just before the closing, you should complete a final walk-through of the house. Real estate contracts generally require the house to be “broom clean” before closing. That final walk-through enables you to make sure no damage has occurred since you last saw the home, any scheduled repairs were made and that everything that was supposed to stay with the house is still there. For example, if you arranged for the refrigerator to stay but it’s gone, you have to sort this out at the closing. Maybe you’ll get the refrigerator back if the owner didn’t move too far away, but more likely its approximate value is adjusted in the closing documents.

The Real Estate Closing

The day finally arrives, and you’re ready to complete the house closing process. Before you sign any papers, review all of the closing documents carefully. Make sure the amount of the loan and your interest rate are correct and see how the final closing costs add up. Expect the seller to pay the real estate commission, while you are likely responsible for the lender and settlement fees, as well as title insurance. Your attorney will generally include their fee in the closing costs. If you have any questions about fees or other closing-related issues, bring them up with your attorney.

Besides you and your real estate agent, the seller and seller’s real estate agents will attend the closing, along with the escrow agent, a representative from the lender and the title company. Don’t forget to bring a cashier’s check made out to the escrow company to pay for your new abode. After the closing, expect to receive all the documents in the mail within a short time.

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