If you are a first-time homebuyer about to close a home, congratulations in due course. You have come a long way in the home buying process. Homeownership is so close you can probably almost taste it. But before you cross the threshold of your new home, there is one final step you must take before collecting your keys: it’s time to lock up.
What is closure?
The closing is the last item on your homebuyer’s checklist. During a real estate closing, ownership of the property is legally transferred to you. This is the day you sign all the documents to formalize the agreement.
How long does it take to close a house?
The time it takes to close residential real estate varies, but can take anywhere from four to six weeks.
If you pay in cash, the transaction can go faster. If you have obtained a loan, mortgage lenders must make sure that several conditions are met before giving the money to the seller.
What can delay closure?
Everyone wants the shutdown to happen. You want the house. The seller wants the money. The lender wants to close the mortgage. The title company and the real estate agents want to get paid. That’s a lot of motivation, but that doesn’t mean delays won’t occur during the close process.
Here are some examples of possible delays:
- Low rating: The lender will not approve a mortgage above a predetermined loan-to-value ratio. If your appraisal is lower than expected, you may need to make a larger down payment or ask the seller to lower the purchase price for the loan to work.
- Title issues: The lender must confirm that the title is free from any legal issues. If any liens or judgments are discovered, your closing could be delayed.
- Inspection issues: If the inspector tells you the home has a significant problem like mold, you may want to go back or renegotiate.
- Funding issues: Your funding can fail for a number of reasons. If you lose your job or your credit rating changes or something else happens that makes you ineligible for a mortgage, your closing can naturally be delayed. First-time home buyer mortgage lenders will give you advice on how to avoid losing your financing.
- Contingencies not met: The purchase contract will state that certain conditions must be met, such as the loan being secured by a certain date. If conditions are not met, it could delay closing and even void the purchase contract.
- Errors: If someone involved in your transaction makes a mistake, it could delay your closing.
What Happens When A Mortgage Closes?
Here are some of the things that must happen to complete a typical home purchase:
Some steps are beyond your control and largely invisible to the buyer. For example, the lender will pay a securities company to perform a securities search. Title search tells the mortgage lender that no one else has the right to claim ownership of the property you are buying.
It’s not that common to opt out of a mortgage before closing, but if you need to, our guide can help you navigate this process.
What should I bring to closing?
These days, you will likely provide most documents digitally before your closing date. Your loan officer should provide you with a list of what to bring with you on closing day. It’s a good idea to bring your phone, tablet, or computer so that you can access your email and the lender’s loan portal, in case the lender misses anything you previously submitted.
In addition, be sure to bring:
- Your government issued photo ID
- A cashier’s check for the amount owed or a wire transfer receipt
- A copy of your purchase contract, loan estimate, and closing statement, to make sure everything that happens during closing matches what you agreed to
What will I pay at closing?
Closing costs are just one of the many expenses associated with home ownership. They are typically 2% to 5% of the loan amount, although not all homebuyers will have to pay them out of pocket on closing day. You might have to pay some fees, such as appraisal fees or credit report fees, but whether you pay something on the closing date depends on the specifics of your loan.
Here are some common scenarios:
- Loan without closing costs: If the lender offers a loan with no closing costs, that means the lender is paying those costs for you. As a result, you will pay a higher interest rate, but no charges on the day of closing. And if you ever need to refinance, lenders can also offer refinancing with no closing costs.
- Reduced closing costs: Sometimes you can negotiate with the seller or the lender to pay some or all of the closing costs. A lender credit or a seller’s credit means that the entity has agreed to pay these costs (and not to integrate them into your loan).
- Deferred closing costs: Many lenders will give you the option of adding your closing costs to your loan balance. It is not a credit. Deferring closing costs means you’ll pay less (or nothing) out of pocket on the day you close. But you borrow money to cover those costs, and you’ll pay interest for the life of your loan. This could affect the amount of home you can afford. If you borrow as much as you can afford, adding closing costs could make you ineligible for the loan or require a larger down payment. Alternatively, the rolling closing costs could mean you have to choose a home with a lower purchase price.
- Pay closing costs out of pocket: In this scenario, you pay your closing costs on the closing day.
Closing costs typically include:
Other items may affect the amount of money needed for closing. For example, if your mortgage lender will pay your property taxes and home insurance premiums, you will need to open an escrow account for these expenses. At closing, these are called prepaid.
Prepayments and all other closing costs are noted on your loan quote which lenders must give you after submitting your loan application. Some of the actual costs may increase at closing, but by law others may not.
What happens on the day of the closing?
You will be signing a mountain of documents at your fence. Take your time and look carefully at each page. These are legally binding documents. You have the right to read and understand each of them and to make sure that they are free from errors.
A notary will be there to verify your identity. They can take a photo of it and may require your fingerprint.
After the purchase transaction is funded (by the loan proceeds and your down payment), a closing agent makes payments to all parties.
Most buyers get the keys to the house on the day they close (unless you and the seller have agreed something different in the purchase contract). Check with the Closing Officer if there are any additional steps you need to take after closing in order to take possession of the house.
Once the closing process is complete, all you have to do is enjoy your new home!