Tips for Closing on a Home

Finding a new home and making a successful offer are the initial steps to homeownership. Before you take possession of the house, you must first close on the house. A real estate closing is the final step of your homeownership journey. Ideally, your closing should be smooth, but issues often arise during closing, jeopardizing your move-in plans.

This Findlaw article offers tips on closing on a home to help you understand the closing process.

Closing Process

The closing process begins after you sign a purchase agreement and give an earnest money deposit. This deposit aims to secure your purchase agreement in good faith. In many real estate transactions, the parties use an escrow account to hold monies until closing day. Closings typically occur 30 to 45 days after you give your down payment.

Here is a non-inclusive list of steps from paying the down payment to taking possession (ownership) of the house:

• Funding
• Title search
• Title insurance
• Home appraisal
• Home inspection
• Homeowners insurance
• Final walkthrough
• Closing meeting

This is a general list of the steps in closing on a home. Your closing may include different elements than those listed here.

Funding

Many prospective homeowners get pre-qualified or get a pre-approval letter before looking for a new home. These are two ways to qualify for a mortgage. A prequalification helps determine how much you can borrow for a mortgage loan. To estimate your loan, lenders will look at your income, debt, and other factors. Lenders often use a soft pull of your credit report, which will not affect your credit history or score.

By contrast, lenders do a more thorough check of your credit for a pre-approval letter. They will pull your credit report and confirm your creditworthiness before issuing a pre-approval letter. While the letter is not a commitment, it shows prospective buyers and real estate agents you are serious. Pre-approval letters are good for 60 to 90 days, giving you enough time to find a house and start the closing process.

Before you can move forward in your journey, you need to fund your purchase. While some people can pay cash for a new home, many people need a mortgage loan to pay for their home.

Title Search and Title Insurance

A title search aims to confirm the seller's ownership of the property. The parties will use a title company or a real estate attorney to do the title search. They will research the home's title to confirm there are no encumbrances on the title. Examples of encumbrances include:

• Prior claim on the land
• Liens
• Adverse possession claim
• Easements

Once the title search is complete, the title company or real estate attorney will prepare a title report. Although title professionals do a thorough job, many prospective homeowners buy title insurance to cover anything the search didn't cover.

Home Appraisal

Before a lender commits to your mortgage loan, it wants to confirm the home's value. Your lender will order an appraisal from a licensed home appraiser to appraise the house and prepare an opinion letter. The house's value should be at or higher than your anticipated mortgage loan.

Home Inspection

Home inspections are not the same as home appraisals. A home appraisal confirms a home's value; a home inspection confirms the condition and structural integrity of the house. Licensed home inspectors check the entire house and the property. Typically, home inspectors look at the following:

• The structural integrity of the house
• Crawl spaces
• Electrical systems
• Plumbing systems
• HVAC systems
• Water heaters
• Infestations

The home inspection aims to help prospective buyers understand the home's condition. If a house has many issues requiring repair, the buyer may rescind their offer (if their purchase contract includes a home inspection contingency clause) or ask the seller for concessions on the sale price.

Homeowners Insurance

Before you can close on your new house and get the keys, you must get homeowners insurance. Most mortgage lenders require you to get home insurance. Like other types of insurance, the purpose of a home insurance policy is financial protection if something happens to your new house. For example, if your policy includes coverage for tornados and a tornado damages your home, your policy will pay to repair any damages. Some policies include protection for your personal belongings and will pay for their replacement.

Final Walkthrough

Before completing the closing documents, you should do a final walkthrough with your real estate agent. The purpose of the final walkthrough is to confirm the house's condition. You can ensure that the seller made necessary repairs and that the house is in good condition. Once you sign the closing documents, the house and any necessary repairs are your responsibility.

Final Walkthrough Checklist

Here are a few things to check during your final walkthrough:

Interior

• Check the basement for structural soundness
• Check crawlspaces; they should be easily accessible and deep enough to allow a person to inspect the entire house.
• Check drywall, as it should appear seamless.
• Check the ceiling, as stains may reveal leaks
• Check paint to ensure uniformity and evenness
• Check all electrical switches
• Check faucets. They should not drip
• Check tubs and sinks, as they should fill quickly and empty rapidly without gurgling

Exterior

• Gutters and downspouts should be even and well-sealed
• Check for smooth seams and surfaces, filled nail holes, and even paint on siding and trim
• Check windows to ensure they are square and fit tightly without binding when opened and closed
• Check attic vents to ensure no obstruction by insulation

Closing Meeting

You may spend a few hours at the escrow company's office on your closing date, reviewing and signing closing documents. The following people typically attend the closing:

• Closing agent/escrow agent
• Notary public
• Real estate agent
• Real estate attorney (required by law in some states)
• Seller
• Seller's real estate agent
• Loan officer

During the closing meeting, you will have to sign documents, including, but not limited to, the following:

• Loan documents
• Deed of trust
• Closing disclosure

Closing Disclosure

The closing disclosure is an important document required by law that outlines the financial terms of your home loan and closing costs. The disclosure should include the following information:

• Loan terms
• Interest rate
• Origination fees
• Estimated monthly mortgage payments
• Estimated monthly payments for property taxes or assessments

It would be best if you took your time to read the closing disclosure and ensure that the information provided in your loan estimate matches the terms in the closing disclosure. Carefully scrutinize the entire disclosure, including the spelling of your name.

Final Step

The final step in the closing process is paying for the new house. You can pay via cashier's check if you do not have a mortgage. Otherwise, the lender will send the money via wire transfer. Then you can get your keys and move into your new home.

Get Legal Help

Closing on a home is often complex, especially for first-time buyers. A qualified real estate attorney can help. They can review your contracts, loan documents, and closing disclosure. Speak to an experienced real estate attorney near you today.