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Closing. It sounds so simple, so definite. But when it comes to buying a home with a mortgage, closing the deal can be anything but simple and definite.
“Wait a minute, there’s more?” you wonder incredulously; exhausted from months of financial preparation, comparing lenders and rates, finding the right agent, choosing the perfect home, and negotiating a favorable purchase contract.
Yes, there’s more. And there’s good news and bad. The good news is, it’s time to bring the deal — and you — home. The bad news? Closing is no easy task, and if you don’t stay on top of everything, you could delay or even jeopardize the deal.
It’s a lot to take in, but don’t let the stress get to you! LoanCompass is here to break it all down into steps so you can navigate your closing with ease. Here’s what smart buyers need to know.
I.The basics on closing
Closing on a mortgage is an overwhelming process that can take weeks — or even months. Before you dive in, familiarize yourself with some basics: What even is “closing,” and how does it work? Time for some important background!
What’s closing?
Closing is the process of finalizing your home purchase and mortgage loan — it’s everything that happens between “under contract” and “sold.”
That includes securing your mortgage loan, doing your due diligence on the property to make sure it’s the one, and hiring some important services to protect your interests throughout the process.
How long does it take?
Closing can take weeks or months depending on the unique details of your home purchase. According to the latest stats from Ellie Mae, closing takes an average of 51 days for those who are buying a home. That’s up from the previous average of roughly 45 days.
Why are closings taking longer now? Put simply, demand has gone up dramatically thanks to low rates and other market factors. When rates are low, more buyers typically enter the housing market, and more homeowners refinance. This puts increased stress on the mortgage industry, which causes wait times to go up.
What to expect during closing
There’s a lot going on during closing! Expect to be in touch with your lender and real estate agent on a daily basis, and to fulfill their requests quickly and accurately. Unfortunately, this is a period of time when you’ll have to be “on call” if you want to be able to close within your contract’s timeline.
Here are a few more specifics of what you, your lender, and your agent will do during closing:
What you’ll do
- Apply for a mortgage once you’re under contract on a home
- Order a home inspection to make sure the property meets your standards
- Lock in your mortgage rate with the lender
- Secure title services and homeowner’s insurance (if those terms are unfamiliar to you, don’t worry — we’ll cover them!)
- Complete the final walkthrough
- Show up on closing day to finalize the purchase and loan paperwork
- Sign and review a lot of important forms throughout the entire process
What your lender will do
- Process and underwrite your mortgage application
- Look under the hood of your finances
- Order a home appraisal to verify they’re making a good investment
- Provide a Loan Estimate and Closing Disclosure outlining the costs associated with your loan
- Close and fund your loan
What your agent will do
- Stay on top of your contract timeline to make sure things are running on time and smoothly
- Communicate what you, the buyer, need to be doing at any given time
- Liaise between you, the lender, the seller, and title services as needed
- Show up to the home inspection and appraisal to represent your interests
- Negotiate on your behalf with the seller if any new information comes up during the inspection, survey, appraisal, etc.
- Help set you up with utilities and necessary services at your new home
- Schedule and take you through the final walk through
How to ensure a quick closing
You can’t control how long closing takes. There’s a lot that will be out of your hands. In fact, that uncertainty is one of the hardest and most frustrating things about getting a mortgage.
However, there are a few major things you can do to ensure a quick closing.
Go with a streamlined lender
Housing markets are squeezed right now. Lenders need to keep up with today’s demands to earn your business. An online digitized experience will help ensure an efficient and quick closing process, in addition to likely saving you money as they don’t have the inefficiencies of other lenders. A national lender typically has the resources to provide a streamlined process. Guaranteed Rate, one of these lenders, offers extremely competitive rates with no lender fees.
Ask about closing times
When you’re shopping around and comparing lenders, make sure to ask about their average closing times in your area. Sometimes a lender offers the most competitive pricing, but they also take the longest. You might need to weigh your budget needs with your moving timeline.
Complete all lender requests in a timely manner
You will be asked for your signature a lot. You also may be asked for the same documents over and over. The quicker you can complete these requests from your lender, the quicker you’ll be cleared to close.
II. Apply for the loan and get a Loan Estimate
First thing’s first: You can’t close if you don’t apply for a mortgage. And before you can do that, you need a property address and an accepted offer for the home. Already have an accepted offer? Congrats! Here’s what’s coming next.
Submit loan application and documentation
Once you have an accepted offer, you should apply with your chosen lender (you shopped around to save money, right?), and upload all financial documents they request. These documents usually include:
- Government-issued identification (passport, driver’s license, state ID card)
- 2 years of tax returns
- 2 years of W2s or 1099s
- Proof of other income (disability, unemployment, tips, commissions, real estate, etc.)
- 30 days of recent pay stubs
- 60 days of bank statements
- Details on stocks, investments, properties
- Gift statement if family is giving you money for the down payment/closing costs
If you already went through a rigorous pre-approval process, you might not need to do much to apply for a mortgage besides submitting your offer agreement and signing some forms.
Credit report pull
One thing to note is that at this point — if they haven’t already — the lender will run a hard pull on your credit, which can ding your score a few points. Not to worry though, your score should recover quickly after you close!
45-day credit grace period
Another thing to know is that you have a 45-day window to shop for a mortgage and your credit score can only be hit one time.
You can apply with as many lenders as you want (though for your own sanity, you probably won’t want to apply with more than a few once you’ve gathered your no-commitment lender quotes!) during this 45-day time period. So make sure to take advantage of that grace period and get yourself a better deal!
What’s a Loan Estimate?
After you apply for a mortgage, your lender has three days to send you a Loan Estimate. The Loan Estimate is an important document that outlines all of the estimated costs associated with your loan, including your closing costs, which can add up to 2% to 5% of the loan amount.
What information is included on a Loan Estimate?
The Loan Estimate includes all of the important financial details about your mortgage, including:
- Loan type (conventional, FHA, VA, or USDA)
- Interest type (fixed or adjustable)
- Loan term (10, 15, or 30 years)
- Sale price and address of the home
- Loan amount
- Interest rate
- Payment schedule
- Monthly principal and interest
- Whether there’s a prepayment penalty
- Monthly mortgage insurance cost
- Monthly escrow cost (estimate of what you’ll pay for taxes and homeowner’s insurance)
- Estimated total monthly payment
- Estimated closing costs (including lender fees and third-party fees and services)
- Estimated cash to close (how much cash you need at the closing table)
- Information on how much you’ll pay in interest
How to read your Loan Estimate
It’s important to carefully review your Loan Estimate as soon as you receive it. Any inconsistencies or errors could mean a closing delay if they’re not taken care of as soon as possible.
The good news is, Loan Estimates are pretty simple and easy-to-read. And they all look remarkably similar — this is by design, so you can easily compare Loan Estimates from multiple lenders.
You just need to take some time to go line by line for each item and ensure that everything checks out. To get a little practice and familiarize yourself with what you’ll be looking at, you can scope out this sample Loan Estimate from the Consumer Financial Protection Bureau.
If you need help, reach out to your loan officer. They can walk you through anything that doesn’t make sense.
Later on, you’ll need to compare your Loan Estimate to your Closing Disclosure (a similar form you get three days before closing that tells you exactly how much money you need at the closing table), so keep a copy close at hand.
How Long is the Loan Estimate Good For?
Loan Estimates are typically good for a period of 10 days. That means so long as you move forward with the loan in those 10 days, the lender can’t change the pricing on you (although your rate isn’t set in stone until you lock — more on that soon). This gives you a bit of time to shop around with multiple lenders.
But keep in mind that with rates changing constantly, you can only compare apples to apples if you apply with multiple lenders — and receive Loan Estimates — on the same day.
III. Lock in your rate
Next you should start thinking about when you want to lock in your rate with the lender, which can give you peace of mind throughout the closing process.
What’s a rate lock?
A rate lock means you agree with the lender on a rate, and keep that rate “locked” throughout the rest of the closing process. Once you’ve locked, the lender can’t change your rate on you even if rates go up the next day (or hour!).
However, rate locks do expire after a period of time (usually 30, 60, 90, or 120 days), so keep that in mind when you lock with your lender.
The pros and cons of rate locks
Rate locks tend to be a pretty good deal for buyers. They allow you to pick a rate you feel comfortable with, and therefore know what the cost will be on your loan.
Being strategic about when you lock can save you thousands on your loan. Some lenders even allow “float downs.” That’s when rates fall after you’ve already locked, and your lender lets you “float down” to the lower rate once.
The con of rate locks is they can be a waiting game, and sometimes you’re unlucky and don’t get the best deal.
Still, it’s nice to have some choice over your rate, even if you can’t control what rates are during your closing.
When can you lock?
The lender will usually allow you to lock your rate anytime after your loan application has been approved. Talk to your loan officer to find out how locking works with your specific lender. And keep in mind that rate locks do expire, so make sure to leave enough of a cushion for closing.
How to lock your rate
Ready to take advantage of historically low rates, and lock with your lender? Here’s how.
Ask your lender some important questions
Get on the phone with your loan officer and ask how their rate lock process works. A few questions that can get you started?
- When and how can I lock my rate?
- When is the latest I can lock my rate?
- Do you offer a float-down provision?
- How long are your rate locks good for?
- Is there anything I should know that would affect when I lock my rate?
Sometimes your loan officer may have tips for you, like “lock ASAP,” or “wait until next week,” based on what they’re hearing from the rest of their team. Tap into this expertise and use it! Locking at the right time can save you big money.
Get the timing right
Locking your rate is all about timing. If you have a float down provision available, that can be a huge relief, so there’s not so much pressure on getting it right the first time. In any case, be patient. You should have at least a few weeks to wait out any rate rises.
When you see a rate you like, grab it
Once you see a rate you’re comfortable with, experts say you should jump on it! There’s no guarantee rates will keep falling tomorrow, so as soon as you see pricing that you feel comfortable with, it’s time to lock.
Now you’ll have the peace of mind in knowing exactly how much you’ll pay in loan interest each month. Phew!
What if rates go down after you lock?
If rates go down after you lock, you can try to exercise that aforementioned float down. If a float down provision isn’t available to you, unfortunately there isn’t much you can do to take advantage of lower rates besides apply with another lender.
However, applying with a new lender may not be possible depending on how far along you are with the loan. Starting the process over could put your closing timeline in jeopardy, so think carefully before you take this route.
If rates go down after you’ve locked, the best thing you can do is reach out to your loan officer to explore your options.
What if your rate lock expires?
If your rate lock expires, the lender may offer you a rate lock extension, either for free or for a fee (which typically amounts to .375% of the loan amount). Otherwise, the lender will offer you a new rate based on current market rates.
That might not be a bad thing if rates have fallen since you locked. But if rates have gone up significantly since then, you might be better off paying the extension where available.
Ask your loan officer to walk you through your options.
IV. Order the home inspection
One of the first things you’ll probably do when your offer is accepted? Order a home inspection so you can do your due diligence on the property. Buying a home is one of the biggest investments you’ll make in your lifetime. One way you protect that investment is by getting a home inspection.
What’s a home inspection and what does it cover?
When you get a home inspection, you hire a professional inspector to visit the property and examine its major components like the roof, foundation, systems, and more. The inspector then creates a report that spells out the condition of the home and any major or minor repairs it needs.
From there, you can decide whether to request repairs from the seller, renegotiate the price, or walk away from the deal entirely (provided, of course, that you have an inspection contingency in your contract).
What’s covered in a home inspection? Typically:
- Property grounds
- Exterior of the home
- Foundation
- Roof
- Electrical (panel, outlets, and anything visible)
- Gas
- Water and plumbing
- Water heater
- Heating and cooling systems
- Insultation
- Walls, ceiling, floors, doors
- Attic
- Kitchen
- Appliances
- Bathrooms
- Bedrooms
- Basement
- Fireplace
- Any other structural components
Why it’s important to get an inspection
A home inspection is technically optional, but it’s rarely advisable to skip getting one. In today’s ultra competitive markets, many buyers are forgoing inspection contingencies, but doing so can be a risky move — especially if, for example, you learn after closing that both the roof and septic system need replacing (two of the costliest repairs out there!).
Remember: This is your one shot to see what’s going on beneath the home’s glossy photos and learn what kind of repairs are needed. Refusing the inspection today could mean costly surprises down the road. An ounce of prevention is worth a pound of cure — don’t skip this step!
How much does a home inspection cost?
Home inspections typically cost between $280 and $400, but prices can be more or less depending on your location, the size of the home, and whether you need additional inspections like termite or mold inspections, which are considered separate (and thus cost more money).
Know the different types of home inspections
Speaking of additional inspections that you can add on, here are a few of the most common options:
- Radon testing
- Asbestos
- Sewar
- Lead
- Mold
- Pest, termite, rodent
- Chimney
- Soil analysis
- Pool inspection
- Underground oil tank
Depending on the property you’re buying, one or more of these add-on inspections may appeal to you. Sure, you’ll shell out more money, but you’ll also have more peace of mind about what you’re getting yourself into when you close.
How to choose a quality home inspector
You can shop around for your home inspector, so get multiple quotes from at least a few different professionals before you make your decision.
Make sure to check all candidates’ credentials, and confirm that they’re licensed and insured in your state. You should also check that they belong to trade groups like the National Institute of Building Inspectors (NIBI), the American Home Inspectors Training (AHIT), or the American Society of Home Inspectors (ASHI).
And don’t forget to ask your agent for their inspector recommendations — they’ve often got a deep rolodex of trusted vendors, some of whom may even offer you a discount.
Top tips to get the most from your home inspection
1. Always attend the inspection if possible
Many buyers don’t attend the home inspection, but skipping this important milestone can be to your detriment. This is your one opportunity to ask the inspector questions and learn about the home directly from an expert. Take advantage!
2. Focus on fixes
The inspector will point out where major and minor fixes are needed. Pay attention and look out for mentions of major repairs, safety issues, or anything that needs urgent fixing. This can help you determine whether the home is worth your while, or whether you’re doomed for heartache. The inspector may be willing to share their opinion on the home, but they usually won’t say outright whether you should walk away from the deal. Still, they’ll provide lots of helpful tidbits and context clues that will help you make an informed decision.
3. Take copious notes
Take notes during the inspection, and ask follow-up questions when necessary. The inspector will likely point out where the main controls of the house are, including the electrical box, the main water line valve, the furnace switch, thermostats, and any other controls for the HVAC system, to name a few. Take notes so you can use this information later. It can be surprisingly overwhelming learning all the new systems of a home!
4. Don’t be afraid to follow up
Still have questions after the inspection is over and the report has been submitted? Don’t be afraid to reach out and ask. A quality inspector will see this follow-up as part of their job, and this is not the time to be shy: Your biggest investment is on the line!
V. Pick your title and closing services
Before you can close on your new home and move in, you’ll need to double check that the property’s title is clear so that it can be assigned to you. Additionally, you’ll need to choose service providers that will help you close and settle the real estate transaction. Here’s what to know about title and closing services.
What are title and closing services?
Title and closing services help you clear the title of your new home and finalize your real estate purchase. These services include important things like:
- Title search
- Title certificate
- Title insurance
- Closing attorneys
- Escrow for your earnest money deposit, down payment, and closing costs
- Managing closing documents
- Coordinating your closing appointment
- Tying up all the loose ends on your purchase
- Calculating how much you’ll spend on prorated closing costs
- Land surveys (these generally come at an extra cost)
- Recording the deed
Title companies
Title companies are responsible for looking into the property’s title, and making sure it’s clear so it can be signed over to you. They also help secure title insurance — for both you and the lender — in case anyone makes a claim on your home in the future.
Why title work is so important
Title companies protect your rights to own the home you’re purchasing. Think about it like you’re buying a used car: The car has to have a “clean” title before that title can be assigned to a new owner. If there’s an outstanding lien on the car, or it had a previous owner who never properly transferred the title, that could make passing ownership tricky.
The same thing is true of homes. Sometimes homes have outstanding title claims the owner doesn’t even know about, such as past debts or legitimate heirs of previous owners.
A title search is an important piece of due diligence that protects you from making your biggest investment into an asset that can’t even be sold.
Major functions of title company
Title companies have a few major functions, all of which are essential to a home purchase. Here’s what you need to know.
1. Title search and examination
The title search and examination look into the property’s title to ensure there are no outstanding claims or liens that could jeopardize the sale.
If the title isn’t clear, the issue will need to be resolved before you can legally purchase the property.
Once the search is done and the title is cleared, you’ll get a title certificate, which grants you legal rights to own the property.
2. Title insurance
While title searches are exhaustive, things can — and do — slip through the cracks from time to time. Title insurance protects you if any claims arise on your title in the future.
Buyers are typically required to purchase a title insurance policy that protects their lender, but you can also buy an additional policy to protect you, and experts highly recommend doing so.
3. Deed recording
When you close, the deed to your new home — showing that you own the property — will be recorded at your county’s recording office. This is the final step in your home purchase, but it’s an important one.
For one thing, recording the deed makes it a public record that the home officially belongs to you. Plus, you can’t get the keys to your new home until the deed is recorded.
Note that the deed may be recorded by the title company or the closing company, and depending on where you live, those two services might be one and the same. Not complicated at all, right?
4. Other services
Title companies sometimes perform other services like land surveys, which map out the specifics of the property and all its features. Though keep in mind that land surveys come at an extra cost, and can run anywhere from $1,000 to $2,000.
How much does title work cost?
The cost of title work depends on your state and the specifics of your home purchase, but expect to pay anywhere from 1% to 2% of the loan amount for title services and insurance.
Closing services
Closing services are just what they sound like — they help you close the deal. The closing agent is a neutral third party that manages the payments between the buyer and seller, coordinates the closing appointment, deals with closing documents, figures out your prorated closing costs, and often records the deed.
Escrow services
Escrow is where a neutral third party manages the funds of the real estate transaction. Your down payment, for example, will go into an escrow account, where it will be held until the terms of the purchase contract are fulfilled. This prevents both parties losing out on money if someone doesn’t hold up their end of the bargain.
Closing agent
You’ll need to choose a closing agent to help you tie up all the loose ends of your purchase and seal the deal. Depending on the real estate laws and customs in your area, your closing agent might be an attorney, title company, escrow agent, lender, or mortgage broker.
Each state has their own closing requirements — for example, in New York it’s required that you hire an attorney — so don’t be afraid to ask your real estate team to walk you through how it works where you live.
How much do settlement services cost?
Settlement services usually cost somewhere in the ballpark of $300 to $1,600, depending on the location and specifics of your situation.
Can you save money by shopping around?
While you can shop around for title and closing services, companies tend to price quite competitively with each other, so you may not find much savings here. Still, it’s always worth getting a few quotes just in case.
You can find a database of title companies through the American Land Title Association. As for closing agents, you can check out this state-by-state guide.
VI. Secure homeowner’s insurance
Another hurdle you’ll have to clear before closing is securing homeowner’s insurance as required by your lender. Let’s walk through the finer points.
What’s homeowner’s insurance and how does it work?
Homeowner’s insurance is a policy you buy to protect your investment in case the unexpected happens, such as a break-in, fire, or damage from strong winds. Homeowner’s insurance can also protect you from liability if someone gets hurt on your property.
How does it work? When a disaster occurs and damages your home — and the event is covered under your policy — the insurance company will reimburse you for the damage.
Most lenders require homeowner’s insurance since they take on a significant risk to lend you the money to buy a home. For example, let’s say you buy a $300,000 home and put down $50,000, while the lender kicks in $250,000. Then let’s say a fire destroys the home just a few months later. If you don’t have a homeowner’s insurance policy, the lender is out $250,000 with no way to recoup their investment.
Requiring homeowner’s insurance is a way of protecting your mutual investment in the home.
Major benefits of insuring your home
Even though it’s required, homeowner’s insurance has some pretty major benefits and it usually isn’t something to skip out on, even if you paid in cash and could technically get away with doing so. Here are some major benefits:
- Homeowner’s insurance is cheap. On average, it’s just $1,312 per year, or $109 per month. While this does add to your monthly housing budget, it’s a small price to pay compared to what you’d lose if your home was destroyed.
- Skipping it could be devastating. Speaking of which, if something were to happen to your home and you didn’t have homeowner’s insurance coverage, you could lose everything — your equity, your personal property, and your dwelling!
- It covers you if you get displaced: When you get displaced from your home by a covered event, your insurance company will generally pay your temporary living costs like hotel stays.
- Peace of mind: Most importantly, you’ll have the peace of mind in knowing that you’re covered by your policy and that your biggest investment is protected.
Decide what type of coverage you need
There are a range of options when it comes to homeowner’s insurance policies. Most homeowners go with a HO3 policy which covers 16 major perils, including:
- Smoke
- Fire
- Lightning
- Hail
- Wind
- Explosions
- Vandalism
- Theft
- Damage from vehicle or aircraft
- Falling objects
- Ice, snow, sleet
- Water damage (but excludes flooding)
But you can also buy a policy with more or less coverage, depending on the home’s location and your lender’s requirements. For example, there are specialized policies for condos, mobile homes, and even older homes.
You may also want or need additional insurance coverage for flooding or other common disasters in your location. Many waterfront properties even require flood insurance. Check a flood map to find out if flood insurance is necessary where you live.
Shop strategically for a policy
You are free to shop around for home insurance, so be sure to get at least three to five quotes before choosing a provider. Your real estate agent or lender may have recommendations. And check with your auto insurance company to see if bundling with them is an option — that can be one great way to save money.
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VII. Set a closing date
You’ve gotten an inspection, locked your rate, chosen your title and closing services, secured home insurance, and cleared the appraisal. Phew!
Finally, the lender gives you those three magic words: clear to close. That means you’ve satisfied the loan requirements and you’re almost to the finish line — so close to that new home feeling, you can practically taste it.
The next thing that should be on your radar is setting up a closing date, when you’ll finalize the purchase and close on your new home. It’s an exciting, yet stressful time. Not to worry, we’ll set you up for success!
Consider your ideal closing date
Choosing a closing date can be a bit of a balancing act. You need to be strategic so you’re not without a place to stay for weeks on end, but you also need to accommodate the seller’s needs and abide by the timelines outlined in your contract.
A few considerations to keep in mind:
- What does your contract say? The dates outlined in your contract’s timeline should give you a “close by” date. Scheduling the closing beyond this date — barring circumstances out of your control — could put the deal in jeopardy.
- When are you required to leave your current residence? If you’re renting and your lease is up, or you’re selling your current home, you probably need to be out by a certain date. Closing before that date is likely in your best interest, if possible, so you aren’t stuck with a gap in between homes.
- When does your rate lock expire? The lender’s rate lock offer does have an expiration date. Scheduling your closing date beyond that date could mean losing your rate and having to chance it with market rates.
- Are you really clear to close? Sometimes things come up at the last minute. For example, your lender might discover an important form is missing, or the appraisal gets held up. Any number of mishaps can delay closing, so make sure to check with your team that you’re really clear to close — as in ready to show up to the closing table tomorrow — when you select your closing date.
- Do you need to accommodate the seller? In seller’s markets, buyers will often strengthen their offers by agreeing to the seller’s preferred timeline. Is that a factor in your closing? If so, make sure your team is on the same page about meeting the contract’s terms, or it could put the sale at risk.
- Are there extenuating circumstances that could delay your closing? Sometimes, title and closing companies can be slower than normal due to high demand. Extenuating circumstances such as a hot real estate market and a high volume of closings can mean slower service. Hang in there and keep in touch with the sellers. Chances are, the seller will deal with these delays no matter who buys the home, so this is usually an issue that can be worked out between parties.
Go through all documents with a fine-tooth comb
Another word to the wise? Before closing day, take the opportunity to go through every document you’ve received from the lender and closing team with a fine-tooth comb.
A surprising number of closing delays happen thanks to simple spelling errors and typos. Double and triple check everything. It’s a lot to sift through, but better to put in some time now to avoid major issues and delays down the road.
Prepare yourself
After you’ve got your closing date set, there are a few more things you need to do to prepare for the big day. Here’s the rundown.
Get your funds ready
On closing day (or sometimes even the day before), you’ll need to make your down payment and pay your closing costs. Most often the payment is made through wire transfer or certified check.
Now’s the time to make sure you have all the money lined up in your account, ready to go for closing day. You won’t get an exact amount until closer to the day, but by this time you should have a strong ballpark figure to work from.
And if you still need to move money around to make your down payment, handle it ASAP. Don’t assume that wires or transfers from other accounts will clear quickly. Sometimes receiving funds can take days, or even up to a week. It’s best to plan ahead!
Have everything you need
Another big way you’ll want to get ahead on your closing date is to make sure you have the following information:
- Where and when is your closing appointment? Who’s conducting it?
- What do you need to bring with you that day?
- How much money will you need for closing costs?
- When will you get your closing documents, such as your Closing Disclosure?
- Who will assist you if there’s a hiccup on closing day?
Your lender and closing team should have answers for you on these questions, and don’t be afraid to be a squeaky wheel when necessary. It’s better than a delayed closing!
Schedule the final walkthrough
You and your agent also need to schedule the final walkthrough on the home, to make sure everything is in the condition it’s supposed to be in. The final walkthrough is typically done the day prior to closing, or the morning of. Basically, it should happen as close to closing as possible, so you can see the property as it will be when you take possession of it.
Don’t skip this step — it’s your final chance to raise concerns if anything isn’t up to snuff. Your agent will be right there with you, confirming that no contractual violations have taken place, like a missing appliance or a suddenly damaged roof.
Plus, the final walkthrough can often be a joyous experience where you exchange gifts with your agent and celebrate a hard-won victory.
Here is a list of things to check at the final walkthrough:
- Test light switches and fixtures
- Make sure all appliances function
- Run the water, flush the toilets, and confirm there are no leaks
- Inspect the interior and exterior of the home
- Test run any ceiling and exhaust fans
- Check that all windows function
- Test heating and cooling systems
- Confirm that garage doors work
- Check that all clutter and trash has been removed and the home is clean
- Run the garbage disposal
- Test the garage doors
- Take an inventory of everything the seller agreed to leave for you or remove from the home
VIII. Review the Closing Disclosure
Within three days of your closing date, your lender will give you the Closing Disclosure, outlining the official costs associated with your loan. This is your last opportunity to review your loan terms and closing costs to affirm everything checks out.
What’s a Closing Disclosure?
The Closing Disclosure is the follow up to the Loan Estimate, and it includes more exact numbers for your closing costs and mortgage payment amount.
What information is included on the Closing Disclosure?
The Closing Disclosure includes all the same information as the Loan Estimate, except the numbers are more accurate. In fact, the Closing Disclosure looks nearly identical to the Loan Estimate — you could almost mistake one for the other if they weren’t clearly labeled.
So expect the Closing Disclosure to include the following finalized information:
- Loan type (conventional, FHA, VA, or USDA)
- Interest type (fixed or adjustable)
- Loan term (10, 15, or 30 years)
- Sale price and address of the home
- Loan amount
- Interest rate
- Payment schedule
- Monthly principal and interest
- Whether there’s a prepayment penalty
- Monthly mortgage insurance cost
- Monthly escrow cost (estimate of what you’ll pay for taxes and homeowner’s insurance)
- Total monthly payment
- Total closing costs (including lender fees and third-party fees and services)
- Total cash to close (how much cash you need at the closing table)
- Information on how much you’ll pay in interest
How to read the Closing Disclosure
Reading the Closing Disclosure requires going line by line through each item just as you did reading the Loan Estimate. You’ll walk through everything from your interest rate to each individual closing cost to make sure you’re not being overcharged, and there are no unexpected surprises coming out of left field. If you have questions or concerns, your closing agent or lender should be able to answer them.
Compare the Closing Disclosure to the Loan Estimate
Another thing you should do to protect yourself is to compare the Closing Disclosure with the Loan Estimate to make sure there aren’t any unnecessary discrepancies. The Closing Disclosure shouldn’t be too different from the Loan Estimate, and any vast differences should be a red flag.
Thanks to consumer protection laws, lenders aren’t allowed to significantly jack up fees from the Loan Estimate to the Closing Disclosure. There are regulatory limits to how much your costs can increase from one document to the next. Let’s walk through the rules.
Which costs can increase?
Some costs can increase from the Loan Estimate to the Closing Disclosure. It basically depends on how much that cost is within the lender’s control.
For example, the buyer chooses their own homeowner’s insurance policy. So if you go with a pricier insurance company, the lender can’t be held responsible that your home insurance is more expensive than what they quoted on the Loan Estimate.
Costs that can increase by any amount
These costs are outside the lender’s control, so they can increase by any amount from the Loan Estimate to the Closing Disclosure:
- Prepaid interest: Since this is based on the number of days left in the month when you close, it can change significantly if your closing date has shifted since you got your Loan Estimate.
- Homeowner’s insurance: When the lender issues the Loan Estimate, they give you a rough cost estimate for homeowner’s insurance. Since you’re the one shopping for a policy, the actual cost you’ll pay can increase significantly from the lender’s estimate.
- Inspection: Again, you choose your home inspector, and their services could be cheaper or more expensive than the lender’s initial estimate.
Costs that can increased by 10%
These costs can increase by a maximum of 10%, since the lender has a pretty good idea — though not exact — of what they should cost when providing your Loan Estimate.
- Government fees: These are government fees that come with a home purchase, like recording fees. These fees are pretty much set and shouldn’t go up significantly prior to close.
- Third-party services chosen by the lender: Any service that’s required by the lender (such as the appraisal) can’t cost more than 10% over the appraisal fee included in the Loan Estimate. Note that this is only for services that you can technically shop for yourself. For services the lender requires, there’s a different rule (see below).
Which costs must remain fixed?
There are also a few costs that must remain fixed no matter what, including:
- Lender fees: The lender fees (such as application fee, loan origination fee, points, etc.) outlined on your Loan Estimate must be identical to those on your Closing Disclosure.
- Third-party services required by the lender: If, for example, the lender requires that you use X Appraisal Company, with no possibility of choosing your own appraiser, the cost cannot change at all from Loan Estimate to Closing Disclosure
- Transfer tax: This is another one that can’t change from the Loan Estimate to the Closing Disclosure. Transfer taxes are often paid by the seller, but can be the responsibility of the buyer depending on the state or the details of your purchase contract (i.e. some buyers will offer to cover them in a seller’s market).
IX. Closing day
Closing day can leave you a bundle of nerves not knowing what to expect. After such a long journey, these last steps can feel overwhelming — but they don’t have to be! Here’s a breakdown of everything you can expect.
What happens on closing day?
On closing day, you’ll sign all the paperwork to finalize your home purchase and pay for your new house. Let’s walk through what that looks like.
You sign a bunch of documents
Your closing appointment is the time when you’ll sign a whole bunch of documents, including the mortgage note and the deed of trust. It usually takes around an hour-and-a-half to two hours.
You pay the down payment and closing costs
You’ll also pay your down payment and closing costs if you haven’t already. You know, the same ones that were outlined for you in your Closing Disclosure. Most buyers pay through wire transfer, but a certified check works too.
Though keep in mind that if you do use a check, it might take an extra day or two for your deed to be recorded, since the closing agent has to verify that the check will clear first.
The lender funds your loan
The lender will fund your loan on closing day, and pay the seller accordingly. Between your down payment and the lender kicking in the rest, the seller is made whole and able to sign the deed over to you.
The title & settlement company records the deed
Finally, the closing agent will take the deed that’s been rightfully transferred to you, and officially record it at the local county recorder’s office. Depending on the time of your closing appointment, this may not happen until the next day — or even the next week.
For example, if you close after 3 p.m., recording might have to wait until the next day since municipal offices tend to close by that time. If you close after 3p.m. on a Friday, unfortunately you may be in for a weekend-long wait.
What do you need to bring with you on closing day?
You’ll want to make sure you’re ready for everything closing day throws at you, so prepare to bring:
- A pen (and a backup pen, just in case!)
- Two forms of identification
- A government-issued photo ID
- Another ID such as a credit, library, or membership card
- Proof of homeowner’s insurance
- Copy of sales contract
- Copy of Closing Disclosure
- Any other forms you signed during the purchase
- Certified check, if you’re using one
- Divorce order or separation agreement where relevant
When do you get the keys to your new home?
There are three conditions to you getting the keys to your new home:
- All documents are signed (this happens at your closing appointment)
- All payments are made to the seller through wire transfer or certified check
- The deed is recorded at the county recorder’s office
After these conditions are met, you’ll finally get the keys to your new home, provided you didn’t agree otherwise with the seller.
When is the first mortgage payment due?
The first mortgage payment comes due the month after you’ve owned the home for 30 days. So if you close on March 12th, your first mortgage payment will come due May 1st.
You do prepay the interest for those days you’ll be in the home prior to the first mortgage payment (this is charged with your closing costs), but it’s still nice to get a break from paying the mortgage so you can furnish and settle into your new house.
Congratulations, after a long journey and a lot of hard work, the day has finally arrived where you begin an exciting new adventure — home ownership!
