You might think purchasing a home is as simple as picking out a house, having a seller accept your offer, signing your name on a couple of dotted lines, and getting the keys.
On the contrary, a home purchase can be a lengthy, complicated process that (hopefully) culminates in a successful real estate closing and a transfer of ownership rights.
This process generally takes place over the course of four to six weeks from the time your offer is accepted, and usually involves an inspection, appraisal, and securing financing.
Prepare yourself for these four surprises as you transition from homebuyer to homeowner.
Surprise #1: You May Need More Than the Down Payment
In addition to a down payment, plan to pay upfront closing costs, such as third-party charges for appraisals, lawyers, credit reports, taxes, etc. Typically this sum is three to six percent of the total loan (for example, $3,000 to $6,000 on a $100,000 home), but total closing costs vary from state to state and from transaction to transaction.
The good news: Your lender must give you a closing cost estimate within three days of your application for a home loan. Preapproval on a home loan is recommended as well. Pre-approval can include a maximum loan amount as well as estimates for closing costs. It may give you added leverage in bargaining with the seller on home price and closing costs.
The bad news: You can’t postpone paying closing costs. They’re due at closing.
Surprise #2: You and the Seller Aren’t the Only People Involved
As you finalize your loan with your lender, buy homeowner’s insurance and arrange for utilities to be transferred, the other parties involved in the purchasing process are completing their own tasks.
If the seller agreed to make repairs following the home inspection, the seller should be completing these tasks and should also alert the utilities companies about his or her final billing date. Other tasks, which may be completed by the closing agent, title company, real estate agent and/or some other party, include but are not limited to:
- Calculation of prorated property taxes
- Determination of loan amounts
- Communication with you and the seller regarding the scheduling of closing and documents needed at closing
- Receipt of instructions and paperwork from your lender for you and the seller to review at closing
You and your real estate agent will probably take a final walk-through of the house within the 24 hours before closing. If you’re not satisfied, you may decide to delay the closing to address your concerns. It is also within this 24-hour period that your lender will probably confirm with you the final prepaid and closing costs so that you can bring money to the closing. Make sure you know how many checks to bring, the amount of each check, and the payee to whom each be payable. You will also want to know whether only certified or cashier’s checks will be accepted.
Surprise #3: You’ll Probably Need Patience — and Paperwork
In preparation for the closing, don’t forget to bring your original purchase contract, a current passport or driver’s license to confirm your identity, and — if your lender wants confirmation from an insurance agency that you have purchased homeowner’s hazard insurance -- papers proving that you have done so.
You may want to set the meeting early in the day in case it lasts longer than expected, and you should prepare yourself to spend one or more hours signing a stack of papers.
Surprise #4: Your Closing Covers Both Your Purchase of the Home and Your Financing for the Home
At closing, you’ll sign several documents — and it’s vital for you to search carefully for any unexpected terms, misspelled names, or incorrect addresses or amounts.
The loan documents may include a mortgage note that commits you to repaying the amount you are borrowing and a truth-in-lending disclosure detailing the loan interest rate, the annual percentage rate, the amount you are borrowing and the total cost of the loan over its life. Another document you may see is the mortgage or deed of trust
Other documents you may review and/or sign at the closing include but are not limited to:
- Closing Disclosure
- A title transfer (or warranty deed)
- A statement of information (or identity) that clarifies that you — not someone else with the same name — are buying the house
- A certificate of occupancy
The Bottom Line About Your Home Closing
A little research can go a long way in helping you feel confident and knowledgeable when it comes to closing on a house. But don’t be afraid to ask questions as you navigate the closing process if anything is unclear.
If things get tough, remember what waits on the other side of the closing table: the keys to your new home.
To read more from our Moving Guide, check out our Checklist on Closing Costs vs. Prepaid Items, read our Tips for Home Inspections, and print out our Home Inspection Checklist to help you along the journey to homeownership.
