Everything You Need To Know About Your Closing
Closing on a residential property seems like the beginning of a brand-new chapter. Still, before you actually become a homeowner, you need to go through a wide range of documents, fees, and signatures.
Closing is the phase where the money and paperwork are transferred, and the buyer acquires possession of the house. The closing date is when a house is officially given to the buyer by the seller.
A large number of individuals admitted finding the entire closing procedure for the real estate transactions quite confusing. Although the closings are handled differently in each state, the outcome of a prosperous closing almost always remains the same.
What Are Closing Costs?
Closing costs can be defined as the expenses you need to pay before you can legally own a house, an apartment, or a condo. Studies have shown that buyers are required to pay at least 2 to 5 percent of the mortgage loan during closing. These generally include an underwriting fee, origination fee, credit report fee, appraisal fee, and title search fee. Whether buying a home or refinancing a mortgage you already have, closing costs must be paid.
Both the buyers and sellers have to pay closing costs, but the former pays most of the amount. You may try negotiating with the seller to cover the costs, and this is called seller concession. Seller concessions can be immensely beneficial if you feel you will have a hard time arranging the money. Now there are limits on the amount that the sellers can provide as a closing cost. Sellers can contribute only up to a particular percentage of the total mortgage value, which varies by the down payment, loan type, and occupancy.
The limitation of seller concessions for the conventional loans is as follows:
Primary Residence
- Down payment of 25% or more – 9%
- Down payment of 10% to 25%- 6%
- Down payment of less than 10%- 3%
Second Homes
- Down payment of 25% or more- 9%
- Down payment of 10% to 25%- 6%
The minimum seller concession for the down payment of an investment property is around 2%.
In the case of FHA loans, the contribution limit is approximately 6% based on the purchase price and appraised value. For VA loans, the seller concession follows a different sort of rule. The seller can provide for things such as origination costs, credit report fees, and surveys. 4% of the lowest purchase price or appraised value goes for escrow accounts and any other funding fee.
How Much Are Closing Costs?
As mentioned right at the start, closing costs can vary from one state to another. It is generally thousands of dollars. For instance, in Indiana, the closing cost excluding the tax was $1909 as in 2019. The Closing Corp info shows in New York; the cost is $5612.
Some localities and states charge transfer taxes and mortgages that escalate the cost in the state, says the vice president of the direct consumer lending at the Embrace Home Loans in Rhode Island, Jared Maxwell. In New York, when you factor in the taxes, the average closing cost can easily shoot up to $12,847.
Lenders must provide an approximate closing cost early in the loan procedure, and near the closing date, the amount you would expect to bring to a house’s closing.
Closing costs can be easily rolled into a mortgage amount. This is also called a no closing cost mortgage. They can be paid upfront to avoid that additional interest. When you roll closing costs in the mortgage, it is necessary to note that while it helps to avoid extra cash, the cost does incur interest down the road.
How Long Does a Real Estate Closing Take?
In May 2020, it took buyers about 47 days to close on the purchase and 44 days for refinancing. Applying for the mortgage pre-approval before you can begin shopping for the home can allow you to close soon since a couple of verification procedures will be finished ahead of time.
The mortgage pre-approval is much more connotative than the messages you get during credit card promotion – ‘You are preapproved!’ With the preapproval letter, you can show your seller that your lender has evaluated your finances, carried out a difficult credit inquiry, and found out how much money you can have for the home purchase.
Although the preapproval can save a substantial amount of time, closing on the house can still be an extensive process. Planning is necessary, specifically if you are renting a house or an apartment currently and your lease is up. Renters must aim to close towards the middle to the end of a month.
The buyer, though, is not the only party that depicts the timeline. If a seller is not able to vacate their house within a stipulated period, the closing process can drag on forever. There are instances where the lenders can close in 20 days but provided the documents are returned fast, and there are no unexpected hurdles that happen with the condition of the house.
How To Prepare for The Closing?
The homeowners need to prepare for the closing to speed up the process. The buyers must obtain beforehand all the important documents that the loan officer will request. They would also wish to make sure that nothing in the finance changes before closing because the lender may and usually does commit last-minute checks of critical information. Changing jobs is perhaps one of the most common mistakes to keep the closing process at bay. If that happens, the lender has to verify the new employer. This creates a hiccup in the final phase.
A few more things to do before closing on the house are as follows:
Review the Title
The last thing you wish to hear when you purchase a house is that a seller does not own it. This may sound weird, but it occurs. It is significant to have a title to get the home properly examined. Schedule an appointment with a proficient, experienced, and reliable examiner to ensure that nobody else can claim they have ownership of your house.
Get a Home Inspection
A large number of lenders will need an inspection, but you will want one anyway to check if there are any problems with the home before you move in. If the inspector finds any kind of structural complications with the home’s facilities, you may be capable of negotiating to have the sellers fix them. This is true if they did not inform you about the problem before you made the offer.
Request Insurance
Before closing on the home, you have to show evidence of the homeowner’s insurance. This helps pay for all the damages that may happen. Homeowner’s insurance generally covers exterior faults, interior faults, injuries that happen in the house, and loss of personal possessions.
Shift the Utilities
Relocating to a new house is quite exciting. But relocating and learning that there is no water can put a dent in your plan. Before moving in, please contact the utility companies in the area to transfer water, gas, and electricity to your name.
What Will Happen at The Closing?
During the closing of the house, you must meet two significant responsibilities:
Sign All the Documents
This process can be divided into two categories – 1) the agreement between you and your lender about the terms and conditions of the mortgage and 2) the agreement between the seller and you regarding ownership transfer. Make sure to go through all the documents with utmost caution before signing them. Do not sign on any form with blank spaces or lines.
Pay for Escrow Items and Closing Costs
There are innumerable fees related to getting a mortgage and transferring ownership of a property. The funds are generally a cashier’s or certified check made to the escrow organization or wire transfer of the funds to a banking institution. Personal checks are usually not allowed.
Please find out what kind of identification is needed before arrival. Usually, one type of identification is required, although some companies ask for two. Government-approved identification like passports or driver’s licenses is normally accepted.
Who Will Be Present at The Closing?
Closing processes vary from one state to another or even from one county to another, but the below-mentioned parties will certainly be present during the closing, which is also called a settlement meeting.
- The closing agent may work for the Title Company or lender.
- The closing agent can be an attorney representing your lender or you. Both sides can have attorneys. It is a great idea to have an attorney who can represent your interests without any hassle.
- The Title Company representative is someone who offers written proof of the property ownership.
- Home seller.
- The real estate agent of the seller, also known as the mortgagor.
- The lender, who is also called the mortgagee.
The closing agent carries out the settlement meeting and ensures that all the documents are signed as well as recorded, and the closing fees and escrow payments are paid as well as distributed properly.
What To Expect on The Day of Closing?
There are three documents to sign during the closing of the house. The first is a deed of mortgage or trust, which is a document that inflicts lien on the property as collateral for the loan. The second is a promissory note, a legalized agreement to pay a lender, including when you have to make the payments and where to send them. The last is closing disclosure, a list of final charges and credits.
In a closing, you must receive the below-mentioned documents:
- The loan estimate contains significant information about the loan, including interest rates, terms, and closing costs. Make sure the information is right, including the spelling of the name.
- Just like a loan estimate, the closing disclosure delineates the details of the mortgage. You must receive the form approximately three days before the closing. This window of time provides you an opportunity to compare what is on the loan estimate to closing disclosure.
- The escrow statement form contains all payments the lender must pay from the escrow account during the first year of the mortgage. These charges have insurance and taxes.
- The mortgage note specifies your assurance to repay the mortgage. It signifies the amount and the terms of the loan and what the lender must do in case you fail to make the payments.
- The deed trust safeguards the note and provides the lender a claim against the property if you fail to meet the terms of the note.
- In case you are purchasing a recently constructed home, you must have certification of occupancy to move in.
The buyer will have a final walkthrough with the realtor to confirm that the home is in proper condition. You may also receive an offer to buy a home warranty. Such plans vary, but they all tend to provide some kind of coverage for the larger systems that are key to making the house comfortable – the water heater, HVAC system, plumbing, and other necessary appliances. If one of the products breaks down due to normal wear and tear, the warranty will help you pay for replacements and repairs.
However, it is crucial to note that warranties may provide limited payouts and protection, so please analyze this option cautiously.
What Are the Factors That Can Cause a Delay?
Several factors can force a closing to delay. One major problem is if there is a repair that appraiser feels needs to be addressed immediately. Another factor is the lien on a title that a seller does not know about. Sometimes, the homeowner also causes delays when they lack the documents the lender needs for closing.
