After all your open houses, shortlisting, lender talks, and budget discussions, you’ve finally set your sights on a dream home that you’re prepared to invest in. If you’re interested in purchasing a property any time soon, you may have heard of the term “closing” before. For those who have never been through a closing process, understanding what it entails can be tricky. After all, there are plenty of moving parts involved and any real estate transaction is chock full of trick jargon. But once your offer is finally accepted and money is provided to secure the contract, the real estate closing process officially begins and you move into the final phase of homeownership. Here’s what you should know:
The Closing Timeline
On average, a property closing takes between 30 to 45 days. On the closing date itself—which is agreed upon between the buyer and seller—all the final paperwork is signed and reviewed, and this process can take up to an hour. However, it should be noted that the actual closing date can be changed based on various factors (which we’ll discuss later).
Understanding Closing Contingencies
There are several closing contingencies listed in your contract, and it’s important for you to meet these conditions before the home sale is considered legally binding. The main contingencies include a home inspection, an appraisal, several loan documents, homeowners’ insurance, and a final walkthrough.
The home inspection protects you from a bad deal, ensuring that there are no hidden faults that could cost you after the sale of the property is finalized. The appraisal fee is required by the mortgage lender to ensure you’re borrowing the right amount of money, and that in the event the buyer defaults, the cost is covered by the sale of the home. Lastly, you’ll need to gather several supporting loan documents to get the final approval on your financing needs.
Closing Paperwork & Closing Day
As previously mentioned, the closing day typically takes about an hour, but it helps to know what you’re getting into beforehand. Closing paperwork includes the promissory note, the escrow disclosure, the mortgage, the right to cancel form, and several other government-mandated documents, disclaimers, and disclosures.
During the closing day, you’ll also pay the lender origination fee, prorated property taxes, any interest that has accrued prior to your first mortgage payment, your title insurance premium, and a portion of HOA fees if applicable. The average closing costs in the United States hovers around $3,400, but depending on your state, this number could be higher or lower. However, your lender will give you an estimated amount of closing costs early on in the loan process.
Getting a Mortgage Pre-approval
A mortgage pre-approval can help you shorten the closing process because most of the information required will already be in your lender’s database. A pre-approval shows the seller that the lender has already reviewed, approved, and determined how much they can lend you for a home purchase.
Furthermore, the pre-approval doesn’t just aid your closing process, but it also provides you with a sense of ease as you go about your home search because you’ll be able to search for homes within your budget. And lastly, it gives you more credibility as a potential buyer, which could put you ahead of the competition.
Potential Closing Delays
There are several reasons why the closing process might be delayed. These issues can occur at any time during the process, including up until the closing day. When you understand these potential road bumps ahead of time, you can help prevent them.
For instance, an official appraisal might be much lower than you expected, which is often a sign that you’re paying much more for a property than what it’s worth. This could end up putting you in a compromising situation because a lender won’t give you more money than you need for the cost of the house. Although there are several ways to remediate this situation, it could still throw a curveball into your timeline.
Loan complications are another common cause of closing delays. For instance, even if you were prequalified for a certain loan amount, that offer could change when the bank takes a deeper look into your financial history, especially if you’ve made some big purchases recently or your credit score has changed in the meantime.
Lastly, a home inspection can reveal issues that may encourage you to re-think the terms of your agreement. All homes, including newer homes, will have some sort of issue—no property is perfect out-the-box. Some issues will be minor and readily fixable, while others will require some negotiation. For instance, serious plumbing, foundation, and electrical problems can result in costly complications, and it’s important for you to understand what you’re getting into.