You have either agreed to sell or buy a home and the buyer has paid the earnest money putting the deal into escrow. Closing on a house is the final step in the real estate transaction where ownership is legally transferred, documents are signed, and the buyer receives the keys to the property. Once the seller accepts the buyer's offer, the closing process officially begins, triggering the next steps such as choosing a title company and starting the mortgage underwriting phase. Now it is time to complete the final steps! This can be both an exciting and stressful time in getting all your affairs in order and preparing to be done with the long and arduous process of a home sale. Here is what you can expect on closing day, including signing paperwork, the potential duration of the process, and the preparations both buyers and sellers should anticipate.
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What Does "Closing" Even Mean?
In a nutshell, closing is the final settlement of all the terms required to complete the sale of the property. The sales contract, usually called a real estate purchase agreement, lays out all the important terms of the sale, including what steps must be completed before closing can occur and what final documents need to be exchanged and signed to legally transfer legal ownership of the property to the buyer.
While the property is in escrow, the buyer and home seller will be taking the required steps to get to closing. The parties will usually coordinate to obtain an appraisal of the property value to confirm the purchase price and a professional home inspection to evaluate the condition of the premises and identify any potential safety hazards. The real estate purchase agreement should clarify what things each party is responsible for paying for. For instance, the home seller is usually required to pay for all the costs associated with obtaining a title report, which includes a title search to identify any title issues such as liens or claims, and preparing the deed to transfer legal ownership. The buyer will then pay for recording the deed, obtaining title insurance (including lender's title insurance, which may be required by most lenders or mandated by local laws), and any costs associated with financing the property, such as the down payment. If there is a co-borrower, their responsibilities and role in the mortgage application and approval process should also be understood.
Buyers should also be prepared to provide a state-issued photo ID for identity verification at closing, and arrange for closing funds by transferring funds securely, often using a cashier's check or wire transfer, to cover closing costs, the down payment, and any prepaid expenses. Before closing, a walk through, final walk, or final walk through should be conducted to verify the property's condition and ensure all contractual obligations are met. Most lenders require an insurance policy as proof of coverage before approving the mortgage.
Contingencies to Fulfill before Closing
Usually the real estate purchase agreement also requires certain contingencies to be fulfilled before closing can occur. If a contingency is not fulfilled, then one of the parties—usually the buyer—can back out of the deal. Possible contingencies include an appraisal contingency, an inspection contingency, a financing contingency, a buyer’s home sale contingency, and a kick-out contingency.
These are usually pretty straightforward. For instance, as you might have guessed, an appraisal contingency requires the home to appraise for at least a certain amount—usually the asking price—or else the buyer can exit the deal. Similarly, an inspection contingency requires that a satisfactory inspection of the home occur that reveals no material defects in the construction.
The Financing Contingency
The most important contingency is usually the financing contingency. This makes the deal contingent on the buyer’s ability to obtain financing for most, if not all, of the sales price. This is required because the buyer usually has to find a house to buy and agree on the essential terms of the deal with the seller before it can approach a lender for financing. Rarely does the buyer already have all the money needed for the deal. No money, no deal, right?
Sometimes a contingency is also included that requires the buyer to first sell their home before being required to purchase the seller’s home.
This happens when the buyer’s home is on the market and the money received from selling it is going to be used to help purchase the buyer’s new home.
Since this contingency puts closing on a rather indefinite timeline, tied to the whims of the buyer’s real estate market, sellers can choose to include a kick-out contingency to protect themselves. This essentially allows the seller to continue marketing the home while waiting for the buyer’s home to sell. If another potential buyer should make an offer on the seller’s home, the original buyer will have a few days to sell its house or agree to remove the home sale contingency; otherwise, the seller can cancel the deal and sell to the new buyer.
Understanding Closing Disclosure
As you approach the final step in the closing process, one of the most important documents you will encounter is the closing disclosure. This legal document is designed to provide a clear, comprehensive summary of all the key details of your real estate transaction, including closing costs, loan terms, and your financial obligations as a homebuyer. Under federal law, your lender is required to provide the closing disclosure at least three business days before your scheduled closing date, giving you time to review all the paperwork and ensure everything is in order.
The closing disclosure breaks down the loan amount, interest rate, monthly mortgage payments, and a detailed list of closing costs—including title insurance, homeowners insurance, and any other fees associated with the purchase. You will also find information about your repayment schedule, any prepayment penalties, and the specifics of your escrow account for property taxes and insurance. This document will also outline the title documents, homeowners insurance policies, and any additional documents required to finalize your home loan.
It is essential to review the closing disclosure document carefully. Double check that the loan amount, interest rate, and closing costs match the figures provided in your initial loan estimate. Make sure all the details about title insurance, homeowners insurance, and other key requirements are accurate and up to date. If you spot any discrepancies or have questions about the terms, reach out to your real estate agent, title company, or lender right away—they are there to help you navigate all the details and ensure a smooth closing day.
Remember, the closing disclosure is not the same as the loan estimate you received earlier in the mortgage application process. While the loan estimate gives you a preliminary idea of your closing costs and loan terms, the closing disclosure provides the final, actual numbers and terms for your real estate transaction. This is your last opportunity to review and confirm all the financial documents and legal obligations before you sign at the closing table.
In addition to the closing disclosure, take the time to review all the other important documents involved in the closing process, such as the purchase contract, sales contract, promissory note, mortgage note, and any additional documents required by your lender or the title company. Carefully reviewing all the paperwork ensures that you understand your responsibilities and helps prevent any last-minute surprises on closing day.
Where Does Closing Occur and Who Attends?
Usually the parties and their attorneys will meet at the office of the title insurance company to finish the deal, but as this article explains, closing could also occur at the escrow company or one of the attorneys’ offices. The closing agent plays a key role in the house closing by managing the paperwork, facilitating the transfer of ownership, and ensuring all legal and financial requirements are met during the process. Often the seller does not even need to attend and can sign the transfer documents ahead of time or execute a power of attorney to allow its attorney to sign for the seller at closing.
Witness-Only Closings
While some states require an attorney to be present at all closings and explain the legal implications of the documents involved to the parties, other states allow “witness-only” closings. In a witness-only closing, an attorney or a notary will be present to distribute the documents and help transfer the funds, but he or she is only there on behalf of the buyer’s lender and will not explain anything to the parties.
Wrapping Up Closing
State laws differ as to what exactly has to take place at closing, but essentially the deed to the property is transferred to the buyer, any remaining closing costs are paid, and funds are transferred and disbursed. The deed will also need to be filed with the County Recorder’s Office before the deal is officially over.
Often, the real estate purchase agreement will require a few actions to be completed after closing. Usually the seller will normally need to have all of their personal property out of the house by the closing date or within a short time thereafter. The seller will also need to coordinate with its lender to receive a release and satisfaction confirming the mortgage has been paid off. Also make sure the lender records the release with the County Recorder’s Office. The parties should keep all copies of closing documents for their records, as they may be needed in the future; for instance, when paying taxes.
