The closing process is the final step in a real estate transaction, and it’s where the property officially changes hands from seller to buyer. While exciting, closing can also be complex, with numerous steps that require attention to detail. Here’s an easy-to-follow guide to understanding the closing process, with tips for both buyers and sellers on what to expect and how to prepare.
Step 1: Review the Purchase Agreement
What Happens:
- The purchase agreement outlines all the terms of the sale, including the agreed-upon price, closing date, contingencies, and any additional conditions.
- Both parties should review this document carefully with their real estate agents or attorneys to ensure all terms are clear and correct.
Tip for Buyers and Sellers: Double-check the details to avoid misunderstandings later on. Pay close attention to timelines for inspections, financing, and any seller concessions.
Step 2: Conduct a Home Inspection (for Buyers)
What Happens:
- Buyers typically schedule a home inspection within a few days of signing the purchase agreement. A licensed inspector evaluates the property’s condition, identifying any issues that may require repair.
- If the inspection reveals major problems, buyers may negotiate repairs or request a price adjustment.
Tip for Buyers: Attend the inspection if possible. It’s a great chance to learn more about the property and ask the inspector questions.
Step 3: Appraisal (for Buyers)
What Happens:
- If the buyer is obtaining financing, the lender will require an appraisal to ensure the property’s value aligns with the loan amount. This protects the lender by confirming that the home is worth the price being paid.
- If the appraisal comes in lower than the purchase price, buyers may need to negotiate with the seller, provide additional funds, or, in some cases, cancel the contract.
Tip for Sellers: Ensure your home is well-presented before the appraisal. Small improvements like a fresh coat of paint or tidy landscaping can help create a positive impression.
Step 4: Secure Financing (for Buyers)
What Happens:
- The buyer finalizes their mortgage application by providing the lender with any remaining documents, such as bank statements and employment verification.
- Once approved, the lender issues a “clear to close,” meaning the financing is ready for closing.
Tip for Buyers: Stay responsive to your lender’s requests for documentation to avoid delays. Avoid making large purchases or changes to your financial situation until after closing.
Step 5: Title Search and Title Insurance
What Happens:
- A title company or attorney conducts a title search to ensure there are no outstanding liens, disputes, or issues with the property’s ownership history.
- Title insurance is purchased to protect both buyer and lender against future claims on the property.
Tip for Buyers and Sellers: The title search is usually straightforward, but if issues arise, they’ll need to be resolved before closing. Sellers should ensure any outstanding liens or encumbrances are settled to avoid delays.
Step 6: Final Walk-Through (for Buyers)
What Happens:
- Buyers typically complete a final walk-through of the property within 24 hours of closing. This is to verify that the home is in the agreed-upon condition and that any requested repairs have been completed.
Tip for Buyers: Use this time to ensure the property is as expected. Check that appliances are functioning and that agreed-upon fixtures are in place. If issues arise, address them immediately with your agent.
Step 7: Closing Day – The Big Day!
What Happens:
- On closing day, both parties (or their representatives) meet to sign the final paperwork. The buyer signs mortgage documents, while the seller signs the deed to transfer ownership.
- The buyer’s lender sends the funds to the closing agent, who disburses them to the seller and covers any other transaction costs.
Tip for Buyers and Sellers: Bring a valid ID and any remaining documents required for the transaction. Buyers should be prepared to pay closing costs, which may include fees for the lender, title, and property taxes.
Step 8: The Transfer of Ownership
What Happens:
- Once all documents are signed and funds are disbursed, the title company or attorney records the new deed with the local government, making the buyer the official owner of the property.
- The buyer receives the keys and can officially move in!
Tip for Sellers: Coordinate your move-out with the closing date, ensuring the property is clean and ready for the buyer to take possession.
Post-Closing Tips for Buyers and Sellers
- Buyers: Update your address, set up utilities, and arrange for property insurance to begin on the day of closing. Keep copies of all closing documents for your records.
- Sellers: Keep records of the sale for tax purposes. Be aware of any tax obligations or deductions you may be eligible for as a result of the sale.