The home buying process can be long. From getting pre-approved for a mortgage to the closing/settlement process – each step takes time. But once you’ve made it through, and you’re at closing (or settlement as it’s known in certain parts of North America), what can you expect? It’s a common misconception that closing happens in a single day; in reality, it’s actually a process. If you’re currently contemplating buying or selling, find more information on the closing process below.
What is Closing/Settlement?
Closing, or settlement, is the term used to describe the final stage of the real estate transaction. During closing, the agreements between the seller/buyer and the buyer/lender are finalized and ‘settled.’ Documents are signed and exchanged, as well as funds. The seller is paid the purchase price of the property, and in turn the buyer receives a deed, transfer documents, and a clear title to the property. If the buyer requires a mortgage loan, funds are distributed from the lender to the buyer, and an agreement is set that the buyer will pay back the loan amount over a set amount of time. This is also the time in which commissions are paid, and any other fees and costs to other parties involved are paid. After everything is said and done, the buyer will walk away with the keys to his/her new home.
How to Prepare for Closing
As a buyer, there are a few things you can do to prepare for the big day. If you have applied for a mortgage loan, you should go over the closing disclosure form. This form provides all the necessary information regarding your mortgage loan (likely the interest rate, annual percentage rate, and term loan) and any additional fees you will pay as a buyer (commonly referred to as ‘closing costs’).
Another important pre-closing item is the final walk-through of the property. Most buyer’s contracts will allow a walk-through of the property 24 hours before the closing. If you are allowed one, take the opportunity to actually walk through the property. Check that the seller has vacated or is in the process of vacating (unless there is a rent-back agreement). You will also want to make sure the property is in the condition agreed upon in the contract (this includes any items the seller agreed to fix). If you find anything during the final walk-through, address it with your agent and/or the seller’s agent as soon as possible. if certain items have not been fixed, or the seller has failed in keeping with the contract, the closing may have to be moved to a later date to accommodate fixes.
If you’re a buyer, and you’ve applied for a mortgage, an important thing to remember is to refrain from taking on any additional debt during the closing process. Although you may be in the final countdown to getting the keys to your new home, you’re not in the clear when it comes to your mortgage loan. Do not put large purchases on credit cards or take on any additional large debt before the deal is final – this can impact the funding of your mortgage and possibly result in being denied the loan in the final days before closing. Wait until you are finally done with closing, and you’re in your new home, before you start spending.
On Closing Day
Closing day is an exciting day, so it’s important to remember what you’ll need for a successful closing. If you’re the buyer, you’ll want to ensure you have all your pertinent papers and documents: proof of homeowners insurance, home inspection reports, government issued ID, contact with the seller if you received one, and anything you’ll need to finalize your mortgage loan (you will likely get a list from the mortgage company on what to bring to the closing).
Another important item for closing is your down payment. If you are a buyer with a mortgage loan, your down payment will likely be dictated by the type of mortgage loan you choose. This money will need to be provided in the form of electronic transfer or certified cashier’s check (it is highly unlikely a personal check would be allowed, but there are cases of personal checks being accepted).
Not only will you be signing many different papers on closing day, but depending on where you live, you may be joined by a number of other people, including: your agent, the seller, the seller’s agent, buyer and seller attorneys, someone from the title company, and even possibly a representative from the bank or lender of the mortgage loan. The good news is, once all the signing is done, and nothing has come up during the closing/settlement process, the seller will have sold the property and the buyer will have a new home. While the entire real estate transaction is a process, it’s important to remember for closing to relax, come prepared, and be ready to close on your home sale or purchase!
Buying or selling a home is no easy task, and waiting for that final closing day can be a true rush of emotions. Your agent can help you through every step of the process, especially when it comes to ensuring you have all the right information and documents for closing.