Understanding the Process for Closing on a House
The house closing is one of the most important and critical steps. Without making it to the closing table, you won’t own your home. Below, we walk you through the details of the mortgage closing process so you’ll know what to expect.
- What to expect at closing
- How to prepare for your house closing
- What you should know about closing costs
- 4 tips for a smooth closing
What to expect at closing
At your house closing, you’ll sign several documents that spell out your legally binding agreement to repay the mortgage you’re borrowing to buy your home. The documents also inform you that your lender has the right to take your house back if you fail to make payments on the loan.
If you’re buying a home, your closing is likely to be more involved. You’ll take the following actions:
- Complete a final walk-through
- Pay your closing costs and down payment (via cashier’s check or wire transfer)
- Clear any funding conditions
- Sign your documents
- Get your keys
If you’re refinancing your mortgage, you might have to:
- Pay refinance closing costs
- Receive cash, if you’re getting a cash-out refinance
- Take care of funding conditions (for example, clear a collection or tax lien)
Before signing that stack of paperwork, be sure you understand what you’re committing to when you put your signature on those final documents.
Who should be there?
You may expect your real estate agent and a representative from your mortgage company to be present at your house closing. If you’re required to have an attorney present, they will also be there. The people that attend your closing will depend on where you live.
You may sign at the same time or separately from the home seller. Either way, expect the seller’s real estate agent and attorney to be present, along with a title company representative, who will provide evidence that the seller owns the property.
Here’s a list of the various representatives who could be present at the closing table:
- You and your co-borrowers, if applicable
- The home seller
- Your real estate agent
- The seller’s real estate agent
- Your lender’s representative
- Title agent
- Closing attorney
You’ll sign several documents at your house closing. These may include:
- Closing Disclosure
- Mortgage or Deed of Trust
- Promissory note
- Residential Certificate of Occupancy
How to prepare for your house closing
You’ll want to prepare several days before your closing. Gather all the paperwork you’ve collected since you submitted your offer on the house through your real estate agent. These documents may include:
- Your signed contract from your real estate agent
- The Loan Estimate from your lender
- Home appraisal and inspection reports (these may be provided by your lender)
- Proof of title and title insurance from your title agent
- Homeowners insurance policy documents
Some of these documents may not be needed, as your real estate agent and lender have copies of them. However, you should familiarize yourself with the details of the deal so you’re ready when you sit down to sign papers.
Your mortgage lender will also send you a Closing Disclosure at least three business days before your scheduled closing date. Compare this document to the Loan Estimate you received after applying for your mortgage to determine how much your closing costs and fees have changed.
What you should know about closing costs
It’s important that you understand closing costs before you close on your mortgage. Closing costs are divided into three categories: costs that can’t increase, costs than can’t increase by more than 10% and costs that can increase by any amount.
Charges that can’t increase at all:
- Fees paid to your mortgage lender or broker, including origination fees
- Fees paid to service providers affiliated with your lender
- Fees for services required that your lender didn’t allow you to shop for (when the service provider isn’t affiliated with your lender)
- Transfer taxes
Charges that can’t increase by more than 10%:
- Recording fees
- Fees required for services that your lender allowed you to shop for from its approved list of vendors
Charges that can increase by any amount:
- Homeowners insurance premiums
- Initial escrow account deposits
- Prepaid interest
- Fees for services required that your lender allowed you to shop for outside of its list of approved vendors
- Fees for third-party services not required by your lender
One reason the Loan Estimate is so powerful is that a lender must disclose its charges accurately. There are some situations that may cause fees in the “can’t increase” categories to jump by an unexpected amount, which can include a change in your loan type or reduction in your down payment. When these changes happen, you’ll receive a revised Loan Estimate.
4 tips for a smooth closing
In a perfect world, your home closing would be a mere formality with no last-minute setbacks or surprises. Hopefully, this is close to your reality, but not all closings go as expected. You can increase your chances of a smooth closing by following these tips:
Read the final documents a few days before closing
Pay attention to your Closing Disclosure and any other documents you may receive before your closing date. It’s much easier to review them without real estate agents and sellers breathing down your neck. And, yes, you do need to read them all.
Understand and agree to everything you sign
If you don’t understand something you’re signing in your closing documents, don’t sign. Ask your lender and real estate agent for clarification. You’re responsible for everything you sign, so don’t commit yourself to anything you don’t understand or agree with. With most refinances, you do get a three-day right to cancel the new loan, but with a home purchase, there are no do-overs.
Review the Closing Disclosure
The most important document you’ll sign is your Closing Disclosure. It lists all charges and who pays what to whom. There’s a section that compares the closing costs from the Loan Estimate from your lender to the final costs. As previously mentioned, some costs may fluctuate while others can’t change at all. If a lender makes a mistake and there are overcharges for costs that can’t change, it has to eat the difference — not you.
Meet any closing conditions when you come in
These could include bringing a cashier’s check for your down payment and closing costs, and satisfying underwriting conditions, such as paying off collections. You’ll need proper identification and perhaps other paperwork, such as a power of attorney.
Besides the Closing Disclosure, you’ll also sign a final mortgage application. Review it for accuracy — be sure your income, debts, employment and assets are accurately represented. Even though your lender will have filled it out, you’re responsible for its content.
Your Closing Disclosure will also include information about the financing costs: your mortgage APR, how much you’ll pay over the life of the loan and your monthly mortgage payment.
Closing a house shouldn’t come with surprises, but you can be prepared if there are.