The home closing process can be overwhelming and intimidating for many especially if agents are closing a real estate transaction for the first time.
The process is the final step in the home-buying journey, and everyone needs to understand each component involved. Home buyers and sellers may have questions about what will happen during the closing, how long it takes, or who will be there to help. This guide is designed to answer all closing-related questions and go through each step of the closing process so that the parties involved feel confident and supported.
By the end of this guide, agents, sellers, and buyers will know exactly what to expect on closing day and feel more prepared for the exciting next chapter of their life. Let’s get started.
The steps leading up to the closing date include:
- 1. Purchase agreement acceptance
- 2. Home inspection (optional)
- 3. Loan origination
- 4. Lender home appraisal
- 5. Loan approval/clear to close
- 6. Homeowner and title insurance
- 7. Closing disclosure/closing date
Now it’s time to dive deep into each one of them.
1. Purchase agreement acceptance
Once the seller and agent agree to the buyer’s offer and the loan pre-approval letter is provided, the earnest money is deposited into an escrow account. This marks the start of the closing process. The buyer can expect to receive closing documents from their lender which will include a settlement statement outlining all closing costs associated with the purchase of the property. Once these documents are received, it’s helpful for buyers to review them carefully and ask questions if there is anything they don’t understand before signing on closing day. It’s also beneficial to discuss closing expenses with the real estate agent or title company to clearly understand what to expect at closing.
2. Home inspection
Before closing, the buyer should set up a home inspection. This is an essential step of the closing process that should be noticed. A qualified inspector will assess the property and provide the buyer with a detailed report about its overall condition and any potential issues, such as foundation problems, electrical wiring, cooling systems, or plumbing issues.
The home inspection report can be used to negotiate repairs with the seller and may even serve as leverage during closing. Buyers need to understand what has been revealed in the report before signing closing documents on closing day.
Although a home inspection is optional for buyers, it is highly recommended. An inspector’s report will bring to the buyer’s attention any potential issues or defects with the property that need to be addressed. This can be incredibly helpful when closing on a home, as it can help buyers avoid making a poor investment of their money by spending too much on repairs after closing.
3. Lender loan origination
After the seller has accepted the offer, the lender will begin the loan origination process. In most cases, a mortgage application is completed before finding the home of choice but if the buyer hasn’t done so already, now is when they’ll need to fill out and submit any remaining documents.
The loan origination is the final step in the loan process, so all information provided must be accurate and up-to-date. Buyers may need to provide such items as proof of income and assets including pay stubs, W-2s, tax returns, bank statements, investment information, employer contact details, and/or any other items deemed necessary by their lender.
4. Lender home appraisal
Most lenders will require an approved licensed appraiser to appraise the home’s value. This is typically done before closing, as it allows the lender to assess the property’s true value and ensure that the buyer is not lending more money than what can be recouped if it were to be sold.
The appraiser completes their due diligence by comparing recent sale prices of similar homes in the area, looking at facilities in the neighborhood such as schools, and kindergarten, inspecting both interior and exterior features of the home and providing an estimate of its current market value. Once this process is finished, they provide the lender with an appraisal report that includes detailed information about the property’s estimated value and a comparison of other properties within the neighborhood.
Buyers should understand how this process works to ensure that they are making an informed decision when closing on a home.
5. Loan approval
Once the buyer has submitted their loan application, the underwriter will review all of the information provided and decide on whether or not to approve the loan.
The underwriter considers credit score, debt-to-income ratio, employment history, and other factors such as down payment and closing costs when making their decisions. Buyers need to understand this process and ensure that all documents are accurate for their loan to be approved. If something doesn’t look right, the lender may ask for additional documentation before approving the loan, so it’s essential that everything is accurate to ensure timely and timely approval.
Take a look at some of the tips and tricks that will help future buyers avoid well-known mistakes that could reduce the amount of financing they apply for.
Once approved by the underwriter, closing day can be scheduled.
6. Homeowner and title insurance
When closing on a home, everyone should make sure that the buyer has the necessary homeowner and title insurance. Homeowner’s insurance is typically required by the lender and provides coverage for any repairs or rebuilding due to fire or natural disaster. The annual cost of the homeowner’s insurance is usually paid upfront, as well as collected in the buyer’s monthly mortgage payments for future payments to the insurance company.
Title insurance is also generally needed by lenders to protect both buyer and lender from any potential issues that may arise with the title of the property. This type of insurance helps protect against any unseen claims or problems associated with ownership should they appear later on down the line. All closing documents must include proof of this type of insurance.
7. Closing disclosures
Before closing on a home, the lender will provide the escrow company with a Closing Disclosure (CD). This closing disclosure will show all of the final details of the loan as well as closing costs.
After the closing documents are prepared, they must be balanced with what was discussed in the original estimates generated by the lender. Once everything is approved, both sides of the deal will be given notice of when and where closing will take place.
At closing, all paperwork should be signed and any necessary payments made before keys can be handed over to the new homeowner. With this final step complete, the buyer can then enjoy his new home and the seller will receive the money for the sold property!
The closing process can be overwhelming, but with the right knowledge and preparation, it doesn’t have to be. Understanding what’s involved in closing on a home, including homeowner’s and title insurance requirements will help ensure that everything goes smoothly. It is important to review all closing documents carefully before signing them so that no surprises arise after closing day.
Taking the time to understand the loan agreement will pay off when the buyer is ready to move into his new home!
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