Everything You Need to Know Before Closing on a House
Buying a home is an exciting process, but it can be exhausting. You spend days, weeks, months even looking for that perfect home, and that's after spending time getting your finances in order. Finally, you find the one you love in your price range and breathe a sigh of relief.
I'd love to tell you that's the end of the journey, but it's really just the start. Closing- as you'll soon find out- is the most tedious, overwhelming, and misunderstood part.
Don't worry, though. We put together this guide to answer some of the most common questions about closing on a house to help you make it across that finish line.
What Exactly is Closing?
Simply put, closing is the last step to take when buying a house. It is the process of "closing" or finalizing the deal. It's when your loan is approved, the title gets transferred, and you get the shiny keys to your dream home. Unfortunately, it's not quite as simple as this description makes it sound, so let's dig into the nuts and bolts.
What Should I Expect When Closing on a House?
A few things will go on during your closing day, but one truly stands out: Paperwork. You are going to be signing a ton of paperwork- not kidding here. Your signature is needed on so many forms that you may start regretting your decision to buy the house- but fret not. It will end, and you'll be glad you pushed through.
There is something really important to point out here. As there is so much paperwork, you will desperately want to rush through it and get it done. I feel the pain, but please don't do this.
Understand that you are signing documents that can impact the next 15 to 30 years of your life- at a minimum. Take your time. Go through each page and be sure you know what you are signing. If you have any questions or something seems wrong, speak up. Please don't wait until you have already signed and it's too late.
There are a couple of other things that will occur on your closing date. Any remaining closing costs must be paid, the seller will sign his or her paperwork, and the title company will register the deed in your name. The part that will take the longest, though, is most certainly your paperwork.
What Are Closing Costs and Who Pays Them?
Closing costs are fees charged by third parties involved in the finalization of buying a home. These can include things like the cost of the home inspection, paying for credit reports, attorney fees, and home insurance. These are usually about three to four percent of the home's total price, but it can vary.
Sometimes, you can negotiate to have the seller pay the closing costs. Most often, though, the buyer is responsible. Your mortgage lender should send you something called a Closing Disclosure a few days before your closing date. It should outline all the terms of your loan and any costs you should expect to pay. Keep in mind that some closing costs- such as home inspection fees- are due prior to the actual closing date.
How Long Does Closing
on a House Take?
No two home buying experiences are the same, so there is no set answer to this question. You can typically expect to have to wait anywhere from 30 days to 45 days for your closing date, but it could happen sooner or take longer.
What Factors Might Delay Closing?
Unfortunately, some things can get in the way of your homeownership bliss. You cannot control all of them, but there are some things you should be aware of.
The first is that the estimated appraisal may not be the same amount as the official appraisal. If it isn't, you might have to renegotiate the price or get another appraisal that will- hopefully- be closer to what was expected. Either way, it can be a problem.
Many people also experience financial issues that put a hold on their plans. Sometimes, they will only get prequalified for a loan instead of being preapproved. This can cause problems because a prequalification is just an estimate.
When looking at houses to buy in the price range of that estimate, they typically put an offer on a home they cannot afford. A preapproval gives you a much more accurate idea of how much you can borrow.
Another finance problem is using credit. When you get preapproved for a loan, you are not getting the money yet. It is just telling you how much you should be able to borrow- if factors remain the same.
Unfortunately, many people make the mistake of using their credit cards, applying for a new loan, or making another move that can decrease their credit score before closing. When they go back to finalize the mortgage, their credit score is no longer the same, so neither is the amount they can borrow. That, of course, puts a big halt in their plans.
One last thing we'll discuss in delays involves damages or trouble in the home. If you happen to notice water damage during your final walkthrough, you will either have to be prepared to fix it yourself or go back and negotiate a lower price.
This is why it's so important that you have a thorough inspection done and for you to do a thorough walkthrough before closing. The more you can walk through, the easier it will become to spot issues that you may not see during the initial excitement of viewing the home.
What Do I Need to Do Before Closing on a House to Ensure Success?
Some things are completely out of your control, but not everything. Following are some steps you can take to help the closing appointment go well.
Title Search
Can you imagine how it would feel going through the whole process of buying a home and prepare to move in just to have someone pop up and claim they actually own the house? This might seem far-fetched, but it really isn't.
There are plenty of times when a family member, ex-spouse, or someone similar claims that the seller had no right to sell the house. Don't let this happen to you. Be sure that a title search is completed so that you'll know if the home is free and clear of any claims from individuals or lenders.
Leave Your Credit Alone
You need your credit to be just as good or better than it was when you were preapproved. Otherwise, you might not get that house of your dreams. There are a couple of ways to do this.
Finalize Your Loan
Before your closing date, you need to finalize your mortgage loan. This is where all of that work and planning from the previous step comes into play. The underwriter will verify your credit score and information and then give you final approval on the loan.
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Walk Through
It's time to do another walkthrough. Hopefully, your attention and home inspection have already caught any current or potential issues. If not, this is the time to take note of them and decide if you should renegotiate on price.
Consider Hiring An Attorney
With all of the paperwork you'll be signing when closing on a house, it's not a stretch to think you might overlook some important facts. I mean, it's hard to focus when your eyes are glazing over.
1. Avoid Credit Usage
It does not matter how good a sale that flat-screen TV or smartphone is on- stay away! Don't make any unnecessary credit purchases. In fact, if you can make all payments with cash for the moment, that's even better. It should be a short time between preapproval and closing, so you can go back to making online bill payments pretty quickly.
Also, this is not the time to apply for a car loan or installment loan. Those can put a pretty big dent in your credit score- especially in the beginning. Hold off until after you have closed on your home.
2. Make All Your Payments
In addition to not using any additional credit, you don't want any new missed payments added to your credit report. Make sure all of your payments are made on time to avoid this issue.
As a side note here, it is best to have a little money socked away for all your bills and any emergencies during the home buying process. That way, you don't have to worry about missed payments or having to use your credit card. Everything will already be covered.
Consider taking an attorney with you. They'll understand the technical jargon better anyway and make sure you are signing what was agreed upon.
Prepare for the Actual Appointment
There are a few things you need to do in preparation for the actual appointment. First, gather your documentation, which we'll list in a moment. Obtain some form of a waterproof envelope or an enclosed binder to put it in.
This is not required- it's strictly for you. It can help prevent spills, rain, and other common issues from destroying your documents right before your appointment.
Imagine walking toward the building where your appointment is occurring and dropping your loan approval into a water puddle. Sure, you can get a copy of it, but that takes up more time. It's better to be prepared for anything.
The next thing you should do is find a sitter if you have kids. Again, this is not a requirement. I don't know any mortgage company, title office, or real estate office that will refuse to let you in if you have your little ones. This is for you and your babies.
As a mom of four, I am well aware that my focus is impacted when my kids are with me. And no child wants to have to sit still and quiet for hours while mom and dad sign papers. Let all of you off the hook by finding someone to babysit- it's well worth the fee. Also, be sure you eat before you go. A growling stomach is not conducive to concentration.
As a bonus, consider getting yourself one of those small exercise balls that you squeeze to strengthen your wrists. Start using it a month or two before you start the home buying process, and- hopefully- those two thousand signatures you have to provide won't cause so many cramps.
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What Do I Need to Take With Me?
To simplify, you need to take identification, proof of homeowners insurance, and a copy of pretty much every document you have gathered since starting your home buying journey. These include home inspection reports, approval letters, and any contracts you have already signed. You should be informed ahead of time of any additional documents you might need, but don't be afraid to call if no one has volunteered any information yet.
Remember, all of the people involved in the closing process are going to benefit financially from it. They will be more than happy to answer any questions to ensure the process goes smoothly, so you should never feel bad about calling to ask questions.
One other very important thing to take is any closing costs not deducted from the home loan. Your Closing Disclosure should tell you exactly how much this might be. Take it with you when you go in whatever forms the closing facilitator accepts. Most often, they'll ask for a cashier's check made payable to the closing or title company.
Where Will It Take Place and Who Will Be There?
Closing appointments usually take place at the title company, though it could potentially happen at anyone's office who is involved. Attendees typically include the buyer- of course- the seller, an escrow agent, an attorney working as the closing agent, the mortgage lender, someone from the title company, and the real estate agents. Under some circumstances, the seller might pre-sign the deed and transfer papers, meaning he or she doesn't need to be there.
Can We Move In As Soon As We Close?
Here is the great news: Yes! As soon as you finish closing on a house, it belongs to you. You can start moving your stuff in immediately or camp out in a sleeping bag on the living room floor if you just can't wait.
The only exception to this is if you and the seller agreed to the seller staying in the home for a specified amount of time. This might happen if they are also waiting on the closing of their new home, are moving out of state but can't leave for a few weeks, or something similar.
However, this is agreed to beforehand, and your move-in date is predetermined. You don't have to worry about being caught off guard by it at the closing appointment.
Conclusion
We hope you found this guide useful and feel more confident about closing on your home. If you're still a little nervous, that's okay. Read through a couple more times, and don't forget to ask your closing team any questions you might have.