Closing on a home is generally met with a feeling of excitement, after all, it’s one of the final steps in the home sale process and is generally referred to as ” closing escrow”. It is understood that the documents signed at closing are the documents that transfer ownership of the property from the seller to the buyer. Still, home buyers often have no idea as to what to expect when closing on a home and this can be the cause of unnecessary anxiety, and rightfully so, as there are certain expectations for both Buyers and Sellers at the closing table.
In this article, I will provide you with an overview of the closing process so you can sit down at the closing table as an informed consumer who is prepared and ready to move forward. Let’s begin with some items that happen before the process of closing can even begin.
Before You Even Sit Down at the Table–Reviewing Your Good Faith Estimate
The process of buying a home involves what may seem like countless documents. Some of these documents you will never need to see again (though you always want to keep them). However, let’s talk briefly about one important document that you will receive from your lender if you are financing the purchase: the Good Faith Estimate. By law, a lender must deliver a Good Faith Estimate to you within three days of having received your loan application. This document is important because it provides you with an estimate of the total amount of money that you will be required to pay at closing in order to complete the transaction. We’ll talk more about this later. However, it’s also important to understand that there are a few other things that will need to happen on your way to closing, as well. For instance, your mortgage application will need to be approved, title on the house will need to be confirmed as clear (which verifies ownership and the legal right to transfer title to the property, unpaid loans/liens on the property, paid/unpaid property taxes, etc.,) and the appraisal will need to have been completed.
Sitting Down at the Closing Table
While all of the paperwork involved in closing on a home may seem daunting, the good news is that your Realtor or your Title company can guide you through and help you to understand the process. If you have any questions, ask! In the state of California, most closings take place through and at a title company that you as a Buyer would have selected when you first submitted your offer. Your title company will usually send you, your loan agent and/or your Realtor a copy of your estimated closing statement (HUD-1) (Housing and Urban Development) prior to closing. If you have not received one, you should request one. In terms of the HUD-1 settlement statement understand that, by law, a buyer must receive the HUD-1 statement at least 24 hours in advance of the closing. Remember we discussed the Good Faith Estimate? Well, consider the Good Faith estimate as an estimate as to what you will need to pay at closing. The HUD-1 statement is the real deal. It documents all money being transferred. This will include money you will be expected to pay, any credits from the seller, what the Realtors will get paid, etc. You can always meet with your Realtor before the closing to review and discuss the HUD-1 and other documents and, of course, your Realtor can tell you what each document you will sign is all about.
Who to Expect at the Closing Table
The day of the closing, the following people will be present at the closing table:
- Escrow Officer/Closing agent from the Title company
- Now, it is a common practice for the Title Company to send a Notary to you in order to facilitate the document signing.
- You, the home buyer
What Documents to Expect at the Closing Table
Upon closing day, both buyer and seller will sign the legal documents that confirm transfer of ownership. The Title company’s closing agent will lead the meeting between the buyer and seller to ensure that all documents and payment agreements are in order.
Procedure for Buyers Closing on a Home
The following documentation must be completed when closing on a home:
- The HUD-1 Settlement Statement. Your HUD-1 statement must be signed by both the buyer and the seller. Again, this statement is used to document the exchange of money in the home sale transaction.
- The TLDS (Truth in Lending Disclosure Statement). The Truth in Lending Disclosure Act is a federal law that was enacted in 1968. The purpose of the law is to protect consumers in their dealings with lenders and creditors. This important disclosure helps to ensure that the buyer is making an informed decision by outlining important information related to the loan such as the annual percentage rate (APR), the terms of the loan as well as the total costs to the borrower.
- The Mortgage Note. The Mortgage note outlines the terms and conditions of the loan agreement
- The Deed of Trust, which gives the lender the right to a foreclosure in the event the buyer breaches the terms of the mortgage agreement.
The Certificate of Occupancy, which is generally provided to buyers of a newly built home.
The Grant Deed, which transfers title / ownership of the home from the seller to the buyer.
Closing on a Home: Getting Up From the Closing Table
Once you get up from the closing table, the transaction is very close to being over.
While most of the work has already been done, there will still be two items to be completed: Funding (unless you are paying all cash) and recording. If you are financing the purchase, funding on the loan–where the bank actually sends the money from the loan you are getting to the Seller. This usually takes 2 to 3 business days to complete. Remember, this will not take place until after everything at the closing table is complete. About 24 hours after the loan has been funded both the grant deed and the deed of trust will be recorded transferring title to the home to you, the buyer.
Congratulations! The process of closing on a home is officially over. You are now a home owner and your Realtor will provide you with the keys to your new home. Welcome home!