Closing On A House

Closing on a house signifies the start of a new chapter in your life. However, this essential final step toward homeownership involves numerous documents, signatures, and fees. Here’s a closer look at what to anticipate on your closing day and in the days leading up to it.

What is the closing process?

Closing is the final step in what can often be a lengthy process in a real estate transaction. The period between signing a purchase and sale agreement and reaching the closing table can take several months. For homebuyers, closing is the day they officially assume ownership of the property and receive the keys. For sellers, it’s the day they collect the proceeds from the sale.

By the time closing day arrives, several important steps should be completed. Unless the buyer is paying in cash, they will have secured a mortgage to finance the purchase. An appraisal of the home and an independent inspection of its condition will have been conducted. Any discussions regarding costs, repairs, and fixtures will have been resolved, and the buyer will conduct a final walk-through of the property. Typically, the seller will have already packed up and vacated the home.

On closing day itself, the homebuyer must sign numerous documents to finalize the deal. Often, various parties are present, including the seller, lender, real estate agents, the closing agent, and an attorney who will also review the paperwork being signed.

Steps to prepare for closing on a house

Closing on a property can be complex. However, your lender and real estate agent will assist in coordinating many of the steps with the appropriate parties. Here’s how to prepare for closing:

Consider Hiring a Real Estate Lawyer
Purchasing a home is not just a transaction between buyer and seller; it also involves a complex legal process. To help navigate this, you might find it beneficial to hire a real estate attorney who can ensure a smooth closing. While this is usually optional, having legal support can help you avoid unexpected issues later on.

Open an Escrow Account
Most homebuyers establish an escrow account at the start of the closing process, typically managed by a title company. This account holds all funds related to the sale, such as the earnest money deposit, until the closing is complete. Once closing is finalized, the mortgage provider distributes the funds to both the seller and buyer, ensuring a secure transaction.

Conduct a Title Search
Initiate a title search on the property you are purchasing early in the closing process. This search will reveal any issues or claims against the home, such as liens or unpaid property taxes, that could affect your legal rights to purchase and occupy the property. Additionally, consider obtaining title insurance during this time to cover any potential title claims during your ownership.

Get a Home Inspection
A home inspection is a crucial step in the closing process. Even the most appealing houses may have hidden problems. During the inspection, a contractor or professional will examine the home for major issues, such as foundation cracks, leaks, plumbing or electrical problems, and safety hazards. Depending on the inspection results, you may choose to back out of the deal or ask the seller to address the issues as a condition of the sale.

Negotiate Closing Costs
While closing costs can be significant, some of them are negotiable. Check if your lender is willing to reduce the origination fee or waive the application fee. If lender’s title insurance is required, ask your mortgage company if you can compare rates to find a better deal rather than accepting a fixed fee from their preferred insurance provider.

Confirm Your Closing Date
Next, confirm your closing date. This is when the seller will fully vacate the home, allowing you to move in. Keep in mind that the closing date is usually at least one month after your purchase offer is accepted, and it can take longer if unexpected challenges arise. Once confirmed, you can begin packing and contacting moving companies.

Do a Final Walk-Through
Even if your initial home inspection went well, it’s advisable to conduct a final walk-through just before moving in. Damage could occur between the first inspection and your move-in date. During this walk-through, ensure that the seller made all necessary repairs and removed any items not included in the purchase agreement.

Understand Your Closing Documents
At closing, you’ll receive numerous important documents, which could total over 100 pages. Be sure to ask your real estate attorney or agent to explain each document. Here are some documents you can expect:

Loan Estimate: Contains crucial details about your loan, including terms, interest rate, and closing costs. Verify that all information is accurate, including your name.

Closing Disclosure: Similar to the loan estimate, this document outlines your mortgage details and should be provided at least three days before closing for comparison with the loan estimate.

Initial Escrow Statement: Lists any payments the lender will make from your escrow account during the first year of your mortgage, including taxes and insurance.

Mortgage Note: States your promise to repay the mortgage, detailing the loan amount, terms, and lender’s actions in case of default.

Mortgage or Deed of Trust: Secures the mortgage note and gives the lender a claim against the home if you fail to meet the terms.

Certificate of Occupancy: Required for moving into newly constructed homes. Request a copy of the title policy and survey as well.

Purchase Agreement: A binding contract that outlines the terms of the real estate transaction, and signing it finalizes the property purchase.

What to bring to a house closing

All parties involved in the transaction should come to the closing table with a photo ID and their professional representatives, such as their agent or attorney.

Sellers should have documentation for any repairs completed after the inspection and be ready to hand over the property keys.

Buyers need to bring the funds to cover closing costs, typically provided in the form of a cashier’s check. Additionally, buyers should present proof of homeowners insurance at this time.

What factors may cause closing delays?

Several factors can delay your closing, including a low appraisal, unmet contingencies, title issues, and problems with mortgage funding.

Low Appraisal
An appraisal, ordered by the mortgage lender, evaluates the home’s value to ensure the sale price aligns with its fair market worth. If the appraisal comes in lower than the purchase price or the amount you’re borrowing, it can affect closing. The lender won’t provide more than the appraised value, so if you can’t cover the difference—known as an appraisal gap—the deal could fall through.

Failure to Secure Financing
If you fail to secure a mortgage due to changes in your financial situation, delays in funding, or other issues, it could slow down or completely derail your closing.

Unmet Contingencies
Contingencies in a real estate contract allow either party to withdraw from the deal if specific conditions aren’t met. This could include issues revealed in a home inspection or if the buyer needs financing or the seller must find a new home. Any challenges related to these contingencies can stall the deal or cause it to collapse entirely.

Title Issues
For a real estate sale to close, the title must be clear—meaning there are no claims or disputes regarding ownership. If there are any liens or claims on the property, closing cannot proceed until those issues are resolved. For instance, the IRS or state government may place liens if the seller owes back taxes.

Bottomline

Closing on a house involves several steps, from hiring a real estate attorney to negotiating closing costs. On closing day, you’ll need to sign numerous documents and pay closing costs and escrow items, along with the home price (minus any good-faith deposit you’ve already made).

Be aware that factors like low appraisals, unmet contingencies, and title issues can lead to delays in closing. By taking the right steps and staying informed throughout the process, you can navigate these challenges and confidently complete the purchase of your new home, marking the beginning of the next chapter in your life.

If you’re looking to sell your property and avoid paying for closing costs, reach out to Illinois Real Estate Buyers for a no obligation cash offer on your property today.