Hopefully you’re here because your purchase offer was accepted by the seller. You’ve finished celebrating that victory and now you’re preparing for what comes next. If not that’s alright. You’ll get there soon. Closing on a house is a process that takes some time, involves many people and a lot of paperwork. Did you know the average time it takes to close on a house is around 45 days? Your home buying team (real estate, mortgage, title and home inspection specialists) plays an important role in bringing everything together for your closing. Here are the things you need to know about the process of closing on a house and where you can save some money with Homes for Heroes.
1) Seller Accepts Purchase Offer
The closing process officially begins when the seller accepts, signs and returns the signed purchase offer (agreement). This is a big step in the home buying process. Getting to this point usually takes a significant amount of time and patience, so getting it done is worthy of celebration! Typically, all parties will begin the closing process working under the assumption the signed purchase offer is final, pending results of any outlined purchase agreement contingencies.
CONTINGENCY NOTICE: What is a contingency? Purchase agreement contingencies are conditions included in a purchase agreement that must be met before the deal is closed. Common contingencies that need to be met during the closing process are appraisal, home inspection, title and financing. These contingencies help protect the home buyer. Throughout this post we note important purchase agreement contingencies that are typical for closing on a house.
2) Buyer Submits Earnest Money Deposit
After the purchase agreement is signed by both parties, the buyer will submit their earnest money check to a title or escrow company. Sometimes earnest money is referred to as a “Good Faith Deposit.” It is intended to show the seller you are serious about buying their house. The money is typically held in an escrow account until the purchase goes through the final closing. At the official closing, your earnest money is typically put toward your closing costs or down payment. Earnest money is typically between 1 to 5 percent of the home sale price. At a minimum, it is good to plan for at least one percent.
CONTINGENCY NOTICE: If you, the buyer, backs out of the deal due to something NOT covered by the purchase agreement contingencies, you will more than likely lose your earnest money deposit. However, if the deal falls apart due to unmet contingencies clearly outlined in the purchase agreement, the buyer will receive their earnest money back. Therefore, work with your real estate and mortgage specialists to assure the purchase agreement contingencies are thoroughly covered.
3) Buyer Schedules Home Inspection
This is where you, the home buyer, schedules a home inspection. The home inspection is an important part of closing on a house. There is a cost to it, but it helps protect you from any unforeseen problems. We recommend you hire a third-party, certified home inspector to conduct your home inspection.
Want a deal on your home inspection? First check with your Homes for Heroes real estate specialist to see who they recommend, then visit the Homes for Heroes Local Deals page and select your state from the dropdown menu to see if there is a qualified Homes for Heroes home inspection specialist offering a special deal on their services!
CONTINGENCY NOTICE: Your purchase agreement should include a home inspection contingency. A home inspection helps protect the home buyer by identifying any hidden issues with the home prior to closing. If a major issue is discovered, the contingency enables the buyer to renegotiate, or walk away from the deal and get their earnest money deposit back.
The Standard of Practice for Home Inspections and Code of Ethics of the American Society of Home Inspectors breaks down the minimum standard of everything a home inspector should inspect during a standard home inspection regarding structural components, exterior, roofing, plumbing, electrical, heating, air conditioning, interiors, insulation and ventilation, and fireplaces and fuel burning appliances.
We highly recommend you ask to tag along with the inspector during your home inspection so you can learn as much as possible about your new home. Typically the home inspector will point out important maintenance tips and the locations of primary switches, valves and meters.
4) Home Appraisal
The next step is taken by your mortgage specialist. They will have the home you want to buy appraised. Typically the home buyer pays for the home appraisal. A home appraisal is how the mortgage specialist learns if the amount they are lending you (in the form of your mortgage) is covered by the value of the property. If the home appraisal value comes back less than expected, your mortgage specialist may reduce the amount they’re willing to lend you. They could also decide not to approve the mortgage loan altogether.
CONTINGENCY NOTICE: Your purchase agreement should include a home appraisal contingency. This allows you, the buyer, to renegotiate or back out of the deal if the mortgage specialist finds the home is not worth the offered price.
If the home appraisal value comes back more than you’ve agreed to pay then you’re good to go.
5) Get Homeowners Insurance
Before your mortgage specialist approves your loan financing, you will need to provide your mortgage specialist with proof of homeowners insurance. Make sure you start shopping for a homeowners insurance policy shortly after your purchase agreement is signed. This is a common delay in the closing process for many home buyers. Many times, you do not need to pay for your insurance premiums right away. Many insurance companies allow home buyers to bundle their first year premiums into their closing costs.
5) Verify Home’s Title and Get Title Insurance
Next your title company will review the public records of the home’s title for any liens, easements, or other agreements. There is a cost to this process, and it is commonly paid for by the home buyer. This is an important step in the process because the title gives you legal claim to the home’s property and you do not want anything getting in the way of your ownership.
Want to save on title fees and/or title insurance? First check with your Homes for Heroes real estate and mortgage specialists to see if they recommend a title company. Then, visit the Homes for Heroes Local Deals page and select your state from the dropdown menu to see if there is a qualified Homes for Heroes title specialist offering special deals on their services!
CONTINGENCY NOTICE: Your purchase agreement should include a title contingency. This allows you, the buyer, to renegotiate or back out of the deal if any issues are found with the home’s title.
Title insurance may not be required by your mortgage specialist to get financing, but it’s still a good idea to get title insurance. You can pay for the title insurance up front or it can be bundled into your closing costs. A title insurance policy protects the home buyer against potential defects. These defects may even arise after closing on the house. Even though the title is verified before closing as having no defects, there can remain hidden issues despite the most thorough search of public records. Having title insurance is a better safe than sorry cost.
If the title company finds the home’s title free and clear of any issues, the home buyer can finalize the financing process with the mortgage specialist.
6) Secure Home Loan Financing
Up until this point, your mortgage specialist has been working diligently on the mortgage underwriting process to finalize your loan. This process can take anywhere from a few days to a few weeks. Financing is typically completed shortly before your closing date.
CONTINGENCY NOTICE: Your purchase agreement should include a financing contingency. If for some reason you are not approved for a loan to cover the agreed upon purchase price, and you need to walk away from the deal, the financing contingency allows you to collect your earnest money deposit.
When it comes to securing your final loan amount, here are some helpful tips to remember:
- Do not apply for any other types of loans or credit leading up to your closing date
- If your mortgage specialist has requests any time during the closing process, please respond to them quickly to keep everything moving
- Tell your mortgage specialist what they need to know to avoid any surprises
- It’s good to be proactive – Call your mortgage specialist frequently for updates
7) Closing Notice and Disclosure
When everything is in order, your title or escrow specialist (or attorney) will send out a formal notice containing the date, time and location for the actual closing. This will be sent to all parties, and the notice will also let you know what kind of documentation to bring to your closing.
At least three business days before closing, your title or escrow specialist is required to send out an official closing disclosure. This document outlines all of the closing costs and other obligations you’ll be agreeing to at closing. This is very similar to your original loan estimate, but it will often contain more detailed information. Go over this document carefully with your real estate specialist before closing on a house to make sure everything is accurate and you understand all aspects of the disclosure.
8) Closing Costs
Closing costs are all the costs you pay at closing and they typically equal about 2 to 5 percent of the purchase price. We broke out 26 potential closing costs to give you an idea of what you may be responsible for paying at your closing. The seller will also pay closing costs.
CONTINGENCY NOTICE: Depending on the market conditions, you may be able to reach an agreement with the seller to pay a portion of your closing costs. Add these arrangements to the purchase agreement contingencies.
You will need to pay your closing costs with a cashier’s check or a certified check. Or, in some cases you may need to send the payment through a wire transfer. Make sure you and your real estate specialist have checked (and double checked) the total amount for your closing costs before you pick up your official check or conduct your wire transfer.
9) Final Walk-Through
The final walk-through is where you get to go through the house and make sure everything is as expected. If you included purchase agreement contingencies outlining certain repairs or upgrades needed to be made, this is the time to make sure they were completed as agreed upon. If you negotiated for any furniture or other items to remain in the home, make sure they’re still there. When closing on a house, this is your last chance to give your future home a good look over before you sit down at the closing table.
10) Closing Day! – Signing Documents
Closing day is when everyone comes together to sign the final documents — and we do mean everyone. Expect your agent, the seller, their agent, your lender, the title company representative and any necessary attorneys to be in attendance. You’ll then go through a mountain of paperwork. Be ready to sign your signature more times than you can count. Your real estate specialist can give you an idea of what to expect beforehand and answer any questions you have during the actual closing.
These are the important documents you should read and sign during the closing (if applicable to your purchase):
- Promissory Note
- Mortgage/Deed of Trust
- Initial Escrow Disclosure
- Signature/Name Affidavit
- Certificate of Occupancy or Occupancy Statement
- First Payment Notification
- Seller/Lender Concessions
- Servicing Disclosure
- Private Mortgage Insurance Disclosure
- Flood Hazard Statement
- Appraisal Acknowledgement
- Equal Credit Opportunity Act Disclosure
- Truth-in-Lending Disclosure
- Mortgage Fraud Statements
- Homeowners Association Covenants and Agreements
- Hazard Disclosures
After you’ve reviewed and signed all of the necessary documents you will be handed the keys to your new home, and you will officially be a proud new homeowner!
Potential Issues that May Slow the Process
Appraisal Problems: Your appraisal may come back lower than expected. There are times when prices rise really fast in some markets and comparable sales are slow to catch up. However, a low appraisal value typically means you’re paying more than the house is worth and a lender will not approve a loan for more than the appraised value. There are options to overcome this issue. Work with your agent, loan officer and the seller to determine the best option.
Loan Issues: If you put an offer on a house before you were pre-approved for a loan, your bank will need to go through the approval process and check whether they can loan you the amount you need. This may, or may not end in your favor. Ideally, you will get pre-approved for a mortgage so you know how much house you can afford before you begin home shopping.
Home Inspection Problems: Most homes turn up some issues during the home inspection. Most are minor and can be ignored for the closing, or negotiated with the seller and added to the purchase agreement contingencies. Big issues like infestations, water damage, foundation issues, or major electrical or plumbing problems are warning signs that need to be addressed. Depending upon the circumstances, it may be best to walk away from the deal.
Final Walkthrough Issues: If you find new damage, something isn’t in the home that should be, or any of your purchase agreement contingencies are incomplete, these issues need to be resolved and can slow the process.
Paperwork Issues at Closing Table: Remember, people are responsible for putting all of your closing paperwork together (50-100 pages on average) and making sure the wording is correct. These people are quality professionals, and great at their jobs, but mistakes do happen. Always, always take the necessary time to read your closing paperwork before you sign it. All the real estate, mortgage, and title professionals are there to help you. Get clarification on anything that does not add up or make sense. Most issues can be resolved at the closing table, but if they cannot, delaying the closing is an option.
Want to work with Homes for Heroes specialists and save significant money on a new home? Register with Homes for Heroes and save an average of $2,400 when you buy a house with the help of our real estate, mortgage, title and home inspection specialists.