Closing on a house marks the beginning of a new lifestyle for homeowners since ownership of the home is transferred. Here’s what to expect at the closing and how long it takes to close on a house.
What are closing costs?
Closing costs are the fees and expenses that the homeowner must pay before he/she becomes the legal owner of the house, condo or townhome. Expect to pay 2 percent to 5 percent of the mortgage loan in closing costs. Fees vary in each state and some have additional ones.
The closing costs include setting up escrow accounts to paying for a title search appraisal and checking a consumer’s credit history. Whether you are purchasing a new home or refinancing a mortgage to receive a home equity line of credit or home equity loan, closing costs need to be paid.
Length of time to close on a house
Ellie Mae, a software company that processes mortgage applications, reports that the average time it takes for homebuyers to close on their home purchase was 47 days as of October 2019.
Closing on a house can be a lengthy process and planning is crucial, especially if you are currently renting a home or an apartment and your lease is almost up.
A closing usually takes 30 to 60 days, but a number of factors can change this timeline. Renters should aim to close toward the middle to end of the month, says Jared Maxwell, vice president of consumer direct lending at Embrace Home Loans in Middletown, Rhode Island.
“This will help prevent paying your final month of rent for an apartment or house you aren’t using,” he says.
On the flip side, the closing date would also depend on how quickly the seller can move out of the home, so the buyer may be in a hurry, but the seller may have a different timetable.
A rule of thumb is to expect at least 30 days to closing because it gives the buyer and the lender an opportunity to complete all the paperwork.
“There are certainly instances where lenders can close in as fast as 15 to 20 days, but this assumes documents are returned quickly and there are no unforeseen hurdles that occur with the condition of the home or the title report,” Maxwell says.
Applying for a loan preapproval before you start shopping for a home can help people close sooner since a few of the verification processes will be completed ahead of time, says John Schleck, a senior vice president in consumer lending at Bank of America in Charlotte, N.C.
What to bring to closing and what you’ll sign
At closing, your participation will involve a couple of steps:
Sign legal documents. This falls into two categories: the agreement between you and your lender regarding the terms and conditions of the mortgage, and the agreement between you and the seller transferring ownership of the property. Be sure to read all documents carefully before signing them, and do not sign forms with blank lines or spaces.
Pay closing costs and escrow items. There are numerous fees associated with getting a mortgage and transferring property ownership. You might also be able to wrap the closing fees into the loan balance.
Funds are usually a cashier’s check made out to the escrow company or a wire transfer funds to the banking institution.
Be sure to find out what type of identification is required. Usually, only one type of identification is needed, though some companies require two. Government-issued identification, such as driver’s licenses and passports, are normally accepted.
Costs of a home closing
Closing costs are typically thousands of dollars and homeowners should plan on paying 2 percent to 5 percent of the mortgage loan. The costs can be rolled into the mortgage amount (known as a no-closing cost mortgage) or paid up front, and some components of closing costs can be negotiated.
These costs also vary by state. Some states and localities charge mortgage and transfer taxes that increase the costs in that state, Maxwell says. Lenders are required to provide an estimate of your closing costs early in the loan process and closer to the closing date an amount you can expect to bring to closing.
For example, the sale of a $200,000 home in Illinois means the buyers will pay title fees that begin at $1,700, escrow fees at $1,500, survey fees of $400 and attorney fees that average $400, says Neil Narut, senior underwriting counsel for Proper Title, a Chicago-based title company. There are many more items on top of that.
How to prepare for a closing
Homeowners can prepare for a closing to help speed the process. Buyers should obtain beforehand all the documents that the loan officer will request, Maxwell says.
“You should refrain from making any large undocumented deposits such as cash deposits and opening any new credit card accounts,” he says.
Buyers will want to make sure nothing in their finances changes before the closing day because the lender does make last-minute checks of vital information.
Who is present at closing
Closing procedures vary from state to state and even county to county, but the following parties will generally be present at the closing or settlement meeting:
Closing agent, who might work for the lender or the title company.
Attorney: The closing agent might be an attorney representing you or the lender. Both sides may have attorneys. It’s always a good idea to have an attorney present who represents you and only you.
Title company representative, who provides written evidence of the ownership of the property.
Seller’s real estate agent.
You, also known as the mortgagor.
Lender, also known as the mortgagee.
The closing agent conducts the settlement meeting and makes sure that all documents are signed and recorded and that closing fees and escrow payments are paid and properly distributed.
What to expect on the day of closing
Several things occur on the day you close. Prepare to spend a few hours on this process.
The buyer will conduct a walkthrough with their realtor to confirm the home is in the condition promised. Plan to obtain a certified check from the bank that is made out to the title company for the closing costs and the remainder of your down payment, Maxwell says.
There are three main documents to sign during closing, including a deed of trust or mortgage, which is a document that puts a lien on your property as collateral for your loan, Schleck says. The second document is the promissory note, a legal agreement to pay the lender, including when you will make your payments and where you will send them. The last one is the closing disclosure, an itemized list of your final credits and charges
“The sellers will sign a few documents and you will receive the keys to your new home,” Maxwell says.
Factors that can lead to closing delays
Many factors can cause delays to the closing. One common item that can cause a delay is if there is a repair that the appraiser believes needs to be addressed, Maxwell says.
Another factor is a lien on the title that the seller is unaware of that must be satisfied before the closing can take place. A homeowner can cause the delay if he/she lacks some of the documents that the lender needs to conduct the closing.
Delays beyond three months are rare, says Mike Tassone, co-founder and COO of Own Up, a Boston-based mortgage company. The causes include finding issues with obtaining a clean title to the home such as tax liens, and previous owners unreleased from title as well as negotiations related to appraisals that come in below the purchase price.
“Throughout the mortgage process, it’s important to complete applications accurately and upload documents in a timely manner to ensure things move smoothly,” Schleck says. “Depending on market activity, there may be some delays as third-party providers such as appraisers tend to get very busy during peak homebuying season.”
You will receive the following key documents:
The loan estimate. This document contains important information about your loan, including terms, interest rate and closing costs. Make sure all the information is correct, including the spelling of your name.
The closing disclosure. Like the loan estimate, the closing disclosure outlines details of your mortgage. You should receive this form at least three days before closing. This window of time gives you a chance to compare what’s on the loan estimate to the closing disclosure.
The initial escrow statement. This form contains any payments the lender will pay from your escrow account during the first year of your mortgage. These charges include taxes and insurance.
Mortgage note. This document states your promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if you fail to make payments.
Mortgage or deed of trust. This document secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.
Certificate of occupancy. If you are buying a newly constructed house, you need this legal document to move in.
Once you’ve reviewed and signed all closing documents, the house keys are yours and you will officially be a new homeowner.