The Closing Process

Step-by-Step Guide to the Closing Process

The closing process involves several key steps that ensure all aspects of the sale are completed legally and properly:

• Open Escrow: Once your offer is accepted, an escrow account is opened to hold funds and documents until the sale is finalized.

• Title Search and Insurance: A title company conducts a search to ensure the property title is clear of any liens or disputes. Title insurance protects both the lender and the buyer from future title issues.

• Home Inspection and Repairs: After the inspection, any necessary repairs are negotiated and completed.

• Appraisal: The lender orders an appraisal to confirm the property's value matches the loan amount.

• Final Loan Approval: The lender reviews all documents and grants final loan approval.

• Closing Disclosure: If you're getting a mortgage, you’ll receive a Closing Disclosure at least three days before closing, detailing all loan terms and closing costs.

Key Documents You’ll Encounter

During the closing process, you’ll encounter several important documents:

• Purchase Agreement: This is the original contract between you and the seller, outlining the terms of the sale.

• Loan Estimate (LE): You receive this document early in the mortgage process, but it’s important to compare it to your final Closing Disclosure to ensure there are no unexpected changes in loan terms, interest rates, or fees.

• Title Insurance Policy: Title insurance protects both you (the buyer) and your lender from potential ownership disputes, outstanding liens, or other title defects that could arise after the purchase.

• Closing Disclosure: This document outlines all the terms of your loan, including the interest rate, monthly payments, and closing costs.

• ALTA Settlement Statement: Similar to the Closing Disclosure but easier to read, this document ensures full transparency in how funds are being distributed at closing. It is a detailed breakdown of all the costs and credits in the transaction, including buyer’s and seller’s closing costs, loan-related fees, escrow fees, any prorated property taxes or HOA dues.

• Deed of Trust or Mortgage: This document secures the loan with the property as collateral.

• Promissory Note: This is your promise to repay the loan according to the terms agreed upon.

• Initial Escrow Disclosure Statement: If your mortgage includes an escrow account, this statement provides details about how much will be collected each month to cover property taxes and homeowners insurance.

• Certificate of Occupancy: If you are purchasing a newly constructed home, this document certifies that the home meets building codes and is safe for occupancy.

• Other Area-Specific Documents: Some states and localities require additional forms related to transfer taxes, local ordinances, or first-time homebuyer programs. Your closing agent or title company will provide any state-specific paperwork needed.

Who Will Be At Closing

On closing day, several parties will be present to finalize the transaction:

• Buyer and Seller: Both parties need to sign documents and finalize the sale. But they do not need to be present in the same room or at the same time. It is likely you won't see the seller at your closing.

• Real Estate Agents: If the buyer and seller had agents, both of them might attend closing, though they do not always.

• Closing Agent: A closing or escrow agent oversees the signing and ensures all paperwork is in order. You can ask this person questions you have about the documents you are signing.

• Lender’s Representative: A representative from your mortgage lender may be present to explain loan documents.

Reviewing and Signing Documents

At the closing meeting, you’ll review and sign all necessary documents:

• Verify Information: Double-check all personal and loan information for accuracy.

• Ask Questions: Don’t hesitate to ask questions about any document or term you don’t understand.

• Sign Documents: Sign all required documents, including the Closing Disclosure, Deed of Trust, and Promissory Note.

• How to Prepare: Note that the closing is not the time to read every document line by line. You also will not be able to change the legal language included in the documents. If you think you'd like to review these documents in more detail, ask for them ahead of the closing date.

Closing Costs and Fees

Closing costs are the various fees and expenses required to finalize your home purchase. These costs typically range from 2% to 5% of the home's purchase price and must be paid at closing.

• Loan Fees: These are fees charged by your lender to process and fund your mortgage. They may include an origination fee, an application fee, an underwriting fee, and discount points.

• Title Fees: Title fees ensure that the property’s ownership is legally transferred to you and that your investment is protected. These may include search fees, insurance premiums, and settlement fees.

• Prepaid Costs: These are ongoing expenses related to homeownership that must be prepaid at closing to ensure they are covered for the initial months. They include property taxes, homeowners insurance, and prepaid interest.

• Government Fees & Transfer Taxes: These costs vary by state and locality but may include recording fees, transfer taxes, and mortgage stamp or intangible taxes.

• HOA Fees: If the home is part of a homeowners association (HOA), you may need to pay an HOA transfer fee or upfront HOA dues.