You’ve built up your credit, saved for a down payment, put in an offer on the house of your dreams, and it’s accepted.
Now the fun part begins: the closing process. Closing on a house may not take as long as getting your finances in order or finding the right home, but it can be just as stressful. There are a lot of moving parts that need to line up for a smooth closing, and due to the pandemic, the logistics have changed.
Thankfully, since the initial stages of the pandemic are behind us, lenders have refined their systems for dealing with remote closings. Many states have set up measures to allow for digital notarization. While qualifying mortgage standards, like for your credit score, have been raised, the chaos has subsided overall. “We went through a very tumultuous probably three or four weeks where there were guideline changes every day,” says Esther Phillips, senior vice president of Chicago-based Key Mortgage Services, about the early days of the shutdown. But she noted this has calmed down as lenders have received more clarification on certain changes.
The good news is if you work closely with your lender or mortgage broker to get a preapproved loan and have all your financial documents in order, closing shouldn’t take longer than usual.
How Long Does It Take to Close on a Home?
Once a seller accepts a buyer’s offer, the closing process begins, and it ends on closing day when the property changes ownership. This process usually takes 30 to 60 days to complete, if the buyer is taking out a mortgage on the property. If the buyer is paying cash (no loan needed), the closing process can be condensed to one or two weeks.
From offer acceptance to closing, expect to complete the following:
Set a closing date: Once you’ve negotiated a price and contingencies, the buyer typically chooses a closing date. Usually, it will be at least 30 days in advance.
Open an escrow account: An escrow account is a savings account set up by your lender to hold any earnest money paid up front by the buyer. This fund can go toward closing costs, down payment, insurance premiums, or taxes.
Title search: Performed by the buyer’s attorney or a title company, a title search is a check into public records to make sure the property is free from any “defects,” like competing ownership claims, tax liens, or other judgments. The property title must be clean of all liens and claims to move forward with the transaction.
Mortgage application, underwriting, and loan approval: A step taken by the buyer and lender. The buyer provides documentation of financials, such as pay stubs, bank statements, and proof of assets. The bank will perform the official credit check and determine if you meet their loan standards. This process can take the most time. Getting a mortgage preapproval expedites it.
Appraisal: Your lender will require an appraisal to determine the property’s value and identify necessary repairs.
Home inspection: Typically optional, but a good idea. It will give you a better idea of the condition of the home and identify potential issues before closing. The seller could also do an inspection before the home is listed.
Final walk-through: The final walk-through is usually done with a real estate agent, and it’s your chance to make sure everything is as you expected. Because of social distancing guidelines, virtual home tours have become more popular for buyers, and Phillips has had cases where the final walk-through was the first time the purchaser set foot in the new home.
Closing appointment: The final step. This is where all the paperwork gets signed and the money changes hands.
The specific requirements, timelines, and responsibilities for each step of the closing process can vary depending on the location of the property. Melinda Opperman, president of the nonprofit, HUD-approved independent counseling agency Credit.org, points out the nitty-gritty of closing differs by state. “We’re headquartered here in California, which is an escrow state,” says Opperman. “Escrow states require a neutral third party to conduct a closing in a real estate transaction.” There are also attorney states, which require an attorney to handle the loan closing. These attorneys typically have in-house staff to handle the closing process, notes Opperman.
During the closing process, limit abnormal financial activity. New lines of credit, big purchases, and unusually large deposits or withdrawals are red flags to lenders.
What Happens on Closing Day?
At long last, the day has come to get the keys to your new home. Because of local variations, you should consult with your lender or real estate agent beforehand and get a checklist with everything you need for closing. You’ll usually need to bring documents such as:
- Valid identification
- Proof of homeowners insurance
- Funds for the down payment and closing costs
Typically, you’ll bring a certified check or cashier’s check for the amount you owe, but you may also be able to wire the money ahead of time (you’ll be required to for a virtual closing). You may also want to bring the purchase contract, and the Closing Disclosure form for your mortgage, so you can verify the details at closing.
On closing day, it shouldn’t take more than a couple of hours to finish the final steps. Right now, many closings are remote or have incorporated some digital aspects.
A virtual closing could involve a notary coming to your home to get documents signed if your state doesn’t have virtual notary laws in place. Another option is to grant power of attorney to a real estate lawyer who can then complete the paperwork. Regardless of how closing processes have changed in your state throughout the pandemic, your real estate agent and lender should have all the kinks worked out.
What to Expect to Pay on Your Closing Date
Closings costs range from 2% to 6% of the purchase price and cover everything from lender fees to property taxes and homeowners insurance. Your lender is required to provide you with a Closing Disclosure form at least three days before your closing day. The Closing Disclosure form is similar to a Loan Estimate, except it provides you with your final closing costs, not just an estimate of those costs.
There are a number of factors that impact how much you’ll end up paying. You can potentially reduce some closing costs, and others you don’t have much control over. By shopping around for the best lender, you can ensure you aren’t paying excessive lender fees. But property taxes, homeowners association fees, and even homeowners insurance are largely dependent on where your future home is located.
How to Avoid Delays and Close Faster
The two biggest cogs in a real estate transaction are the property and the loan. If you run into delays, it’s most likely going to involve one of those two pieces.
Delays in financing could be as simple as not getting the right documentation to your loan officer or mortgage broker in a timely fashion. It’s also important to avoid major changes to your credit report during the closing process. Phillips advises buyers not to open any new lines of credit, avoid big purchases, and not increase balances on existing sources of credit (i.e., don’t max out your credit cards) in the lead-up to a home purchase. These actions are monitored by your lender and are cause for a review of your credit profile.
You should also be in contact with your lender about any large financial transactions if they can’t be avoided. Lenders will need you to verify unusual deposits and large withdrawals. Even if you’re only moving money around from a retirement account or the sale of stocks, Phillips says you’ll need a paper trail. Part of the reason for this is the lender wants to be sure your financial circumstances haven’t changed. Taking out new debt could impact your ability to pay your mortgage.
For sellers, the property should be in order before the sale. While it isn’t required, completing a home inspection before listing a house helps move the closing process along by taking care of problems ahead of time. Issues with the property may come to light during the appraisal. An appraiser can cite repairs needing completion before the mortgage will be approved, and each repair adds more time to the closing. This step is especially important with government-backed mortgages (FHA, VA, or USDA loans) because they have stricter appraisal standards. Fixing problems ahead of time, or disclosing them to interested buyers, also removes potential negotiation points.
Opperman believes it’s helpful for the buyer and seller to be on the same page with what is and isn’t included with the home. She has run into situations with clients where light fixtures, sheds, or appliances were unexpectedly missing during the final walkthrough. This type of snag in the closing process is easily avoidable.