Today, we have an awesome guest post about the home closing process from Megan DeMatteo — a creative writer, journalist, editor, and freelance writer. She writes professional content in the niches of education, wellness, personal finance, and human rights.
Up to 70% of Millennials have regrets about how prepared they were for buying a home.
Unlike older generations, the millennial’s journey towards the “American Dream” includes navigating an ocean of student loan debt, pressure to obtain advanced degrees, the scheduling Tetris game of double-income households, and healthcare costs out the wazoo.
Let’s just say, there is a lot to consider, and less time, it seems, to learn all you need to know before making one of the largest purchases of your life.
But let’s just say you swim through this sea and finally decide you are ready to buy a house. You make an offer on your dream home, and congratulations! You are approved!
Don’t Celebrate Too Early
But not so fast.
Nothing is official just yet.
The last step to buying your dream home is to prepare for closing. Your closing date is the official day that property ownership is transferred to you legally. Typically, the buyer and the seller decide on the closing date at the time your offer is accepted. It is then written into the purchase agreement contract, and you make your earnest deposit to claim your home.
But what happens next can vary depending on factors like where you live, what kind of loan you’ve taken out, and the condition of the house. The truth is, it can take up to 30-50 days from the time your offer is accepted to the date your home is ready for closing. According to the Ellie May Report, the average closing time is around 46 days.
We know – after months of searching for the perfect home, a month and a half can feel like an eternity!
But taking some time to understand the closing process will allow you to adjust your expectations and also help ensure that you won’t have to wait any longer than is normal.
Let’s break it down.
The Home Closing Process From Start to Finish
Many variables contribute to the speed of your home closing. Whether you are a first-time buyer or a new retiree, you must remember that not all closings are the same. For example, the type of mortgage you have will impact your closing speed. So will local and statewide regulations.
But no matter the variables, here are the key players involved:
- Escrow Officer / Closing Agent – a trained employee of the title company, sometimes a real estate broker, who acts as a neutral facilitator of your financial transactions and ensures your funds are deposited into the appropriate escrow account
- Title Insurance Agent – ensures the title to your new home is legitimate and issues insurance to protect against disputes over ownership down the road
- Real Estate Agent – often not legally required but helpful, especially when buying your first home
- Real Estate Attorney – again – optional – but helpful in navigating paperwork, hiring credible contractors, and securing your title
Once you understand everybody’s function, it’s time to get the ball rolling. In essence, closings happen like this:
- The buyer, seller, and real estate teams meet at the local title office where proof of ownership is legally transferred.
- The seller brings the title, the deed, the property’s plat of survey, proof of home inspection, proof of necessary repairs, and other required documents (depending on your locality).
- You, in turn, make a payment into your escrow account, the neutral institution that facilitates the transaction between both buyer and seller.
- Once the funds arrive, the seller receives the proceeds and your agents are paid.
- The title is transferred to the lien holder and registered with the local municipality.
- You will receive the title when the mortgage is paid.
Congratulations! You now have legal possession of your new home.
Factors That Impact The Home Closing Process
As you can see, closing is a simple process on paper. But in reality, there are several factors at play. To help you prepare, here is a comprehensive list of steps that must take place before you will be eligible to close on your home:
1. Home Inspection
Your inspection protects you from eating the costs of expensive structural and electrical issues. It is also usually required by law.
The inspection is performed by an official home inspector and paid for by the buyer, either ahead of time or at the time of closing.
This is required by your mortgage lender to protect them from loaning you more money than your new house is worth.
Your mortgage lender will assign a professional appraisal, and you will pay for this fee as one of your closing costs.
3. Completing Your Loan Qualification
Sometimes the qualification process gets extremely lengthy if the loan applicants are up against their qualification limit. This can postpone the closing until approval is finally granted.
Even if you were pre-approved for a loan, it’s important to have all of your supporting documentation ready in case of a dispute. This includes your identification, income statements (pay stubs, W-2 forms), asset statements, investment statements, and any other document your lending institution might require.
Ask your mortgage professional ahead of time what documentation will be necessary to ensure there are no unexpected snags. The number one reason why closings are delayed is due to buyer financing. Do your part to show that you are qualified.
4. Homeowners and Private Mortgage Insurance
Homeowners insurance is always required by the lender. In fact, you will pay your monthly premium as part of your mortgage payment. The bank holds this money in escrow, and once a year, the bank pays the insurance premium to be sure to protect their investment.
What does this mean for you? You’ll need to shop around and find the best home insurance plan for you. Then, notify your bank of your choice and they will add your monthly premiums to your mortgage amount.
Now, on the other hand, Private Mortgage Insurance (PMI) is sometimes required too. It all depends on your down payment, rate, and terms. Typically, banks only require PMI if your down payment is less than 20%, with some exceptions for government-backed loans through the VA, FHA, etc.
The best way to ensure you’re not paying more monthly for PMI is to save up a strong down payment. But, if this isn’t possible, PMI might be part of your journey to home ownership.
5. Final Walkthrough
The final step before closing, 24 hours before you head to the title office, you and your real estate agent will walk through the empty house and make sure its condition matches your agreed-upon terms.
For this, you’ll want to take the contract you agreed upon at the time of your offer. Double check that the condition of the home matches your standards. Once the home has your approval, you are ready to close on it.
Reasons Why Closings Are Delayed
So what could go wrong? The answer is that every one of these single factors presents numerous opportunities for complications to arise.
It’s important to maintain a keen eye during your walkthrough, keep track of all important paperwork, and always keep the phone by your side.
Here are some of the common problems that lead to closing delays, and more importantly – what you can do about them:
1. Buyer Financing
Nearly half of all closing problems are caused by financing issues. Sometimes problems arise after a pre-approval, but sometimes buyers get themselves into hot water by making an offer before they’ve even applied for a loan, then having to back out if they aren’t approved.
What To Do: Whip your credit into shape to ensure you are fit to apply for a mortgage. Wait until you’ve been approved for a loan to make an offer. Only borrow what you need, and – perhaps most importantly – don’t apply for any additional credit until your closing is final.
2. Disputes over closing costs –
When closing on your home, some fees are automatically assigned to either the buyer or the seller. Other costs are either negotiable or mandated by local or state law. But it can get complicated.
What To Do: Do your research on closing costs, hire a real estate lawyer from your area, and be sure to outline the buyer and seller costs in the Good Faith Estimate contract (an industry standard form) ahead of time that outlines these agreements in writing.
3. Unexpected Appraisal Findings
Appraisals happen early in the loan process. Yet, even though the appraisal happens way before your closing, a poor appraisal will ensure that your bank won’t loan you what you offered on the house.
What To Do: There are a few options. First, know that you have to reopen negotiations to address contingencies and either come to a new agreement or kill the deal. You can start with challenging the appraisal, and if that doesn’t work, conduct another.
Be prepared to ask the seller to lower their price (in some places you can even write a contingency clause in your purchase contract that will allow you to abandon the deal or change the terms). If all else fails, cancel the contract if you can walk away. And if you can’t – try to meet the seller in the middle.
If you absolutely love the house, it might be worth paying the difference out-of-pocket.
4. Home Inspection Problems
No matter the age of the home, unexpected issues with the home’s structure, wiring, and other structural concerns are bound to arise and set back your timeline.
What To Do: Assess whether the issues are minor, like cracked tile or paint touch-ups.
Other issues, like water damage and insect infestation, might require that you simply walk away. Make relationships with contractors in your community to find bids for any potential projects.
Ask yourself what you can fix on your own, what you’re willing to pay for, and what red-flags you simply can’t ignore.
5. Paperwork Problems
You might think that you are the only one digging through old files for paperwork.
In addition, when it’s time to sign the papers, you might find an issue with one of the clauses.
What To Do: Speak up if you have questions. And ask your real estate agent and title insurance agent for help. Your team is there to help you, so be sure to rely on their expertise and always read the fine print.
6. Expired Escrow
As we mentioned, the kind of loan you take out for your mortgage can impact closing speed. All loans take time to process – including federally-funded loans, private loans, demographic-specific loans, and loans involving third-party processors.
When you initially made your Good Faith Deposit, you asked your seller to trust that your paperwork would come through in a certain amount of time. Think of it this way: for ever day that goes by, you are asking the seller to keep the house off the market while you get your ducks in a row.
Standard escrow for a Good Faith Deposit duration is about 30 days, but some loans don’t always fit within that time frame. From the time your application is submitted, it can take up to 75 days for the loan to fully process.
There is delivery, disclosure, documentation, review, appraisal, underwriting, approval, clearing, closing, and, finally funding – and all of these administrative steps take time. Here are more specifics about loan type and processing.
What To Do: Work with your mortgage professional to find out what loan is appropriate for you (and ask yourself whether you can afford to wait).
Set a reasonable closing date based on the length of your specific loan’s cycle. so that all expectations are communicated ahead of time and surprises – which lead to frustration – are minimal.
Remember – if the seller knows that you are sincere and diligently making strides to complete the deal, they are going to cut you some slack. After all, they want to sell as much as you want to buy.
While it might sound like a lot, closing on a home is not cause for despair. With clear communication and a little research, you can take control of your homeowner’s destiny.
Yes – it can feel like an eternity, but you’ll be glad you handled the details correctly.
Now unpack those boxes and relax!