After an offer is accepted when buying a home, the sale will enter the under-contract phase leading up to the final real estate closing day. Once the parties sign the real estate purchase agreement and the buyer pays earnest money, several additional steps must be completed before the property can successfully transfer from seller to buyer.
The process normally takes around a month, but it can vary depending on different circumstances that may emerge during the real estate closing process. Here, we’ll quickly walk through the different steps from the beginning of the under-contract period through the final real estate closing day.
What is a Real Estate Closing?
A real estate closing is the final stretch of a real estate transaction, during which several tasks prepare the property for transfer. Throughout this time, several inspections are performed to check everything from the physical condition of the home to the underlying financial and legal health of the property.
Of the several key factors affecting your house’s closing time, new information uncovered during a home inspection, appraisal, or title review can create anything from short delays in the real estate closing process up to terminating the sale. For example, should the seller have a lien on the home and the sale won’t cover their mortgage payoff and lien-connected debt, a buyer may opt-out without penalty, thanks to a contingency typically included in real estate purchase agreements.
9 Parts of the Real Estate Closing Process
In most cases, your real estate agent will do most of the heavy lifting during a real estate closing. As a buyer, you’ll normally just sign papers and correspond with your agent, who will initiate most processes.
The steps completed during the real estate closing process are as follows – just note that some steps will differ for buyers and sellers.
1. Secure Escrow & Title Services
During a home sale, the seller’s real estate company will usually help establish a neutral third-party account to hold funds in an escrow. This account will hold earnest money paid by the buyer, which will typically go toward the down payment of the home unless the buyer breaks the purchase agreement.
This part of the real estate closing is also usually when the first “check” occurs: the buyer’s real estate agent will conduct a title search and obtain title insurance to guarantee clear ownership.
If anything unusual occurs, this would also be the time for the buyer to consult a real estate attorney to review complex closing documents and address any potential issues. Information uncovered will usually be passed along for lender title insurance purposes to protect against defects.
2. Understand and Negotiate Real Estate Closing Costs
The buyer should either consult with their attorney or closely review all real estate closing material themselves to understand and potentially negotiate fees associated with inspections, appraisals, and other closing services.
In many cases, there’s little wiggle room. But it can be useful if you’re working with a realtor who seems to tack on excessive administrative fees to perform a standard closing process.
3. Perform Inspections, Get an Appraisal, and Review Disclosures
Schedule a home inspection to identify repairs needed and an appraisal to get an official statement on the value of a home.
Often, a home inspector is scheduled during a real estate closing first to review various aspects of the home’s well-being. However, not all home inspections are created equally, as many offer tiers of service that range from basic inspections that cover need-to-know data on crucial systems to more detailed assessments.
Home inspectors will often recommend additional pest inspections, should they see anything indicative of a past or present problem. In some areas, pest inspections are required, meaning most agents should automatically schedule one during the real estate closing process.
4. Lock in Your Interest Rate
If you’re a buyer, contact your lender to secure mortgage rates and avoid fluctuations that could impact monthly payments. Once you get pre-approved for a mortgage, some things will vary slightly a bit. Make sure everything is in place and identify if there are factors that could change conditions during the lender’s final financial check near the closing date of the real estate transaction.
For example, if you’re buying a home and something happens that causes you to finance a new vehicle during the under-contract period, this will impact your debt-to-income (DTI) ratio and may change rates.
5. Remove Contingencies After Ensuring Conditions Are Met
Once satisfied with inspections and disclosures, remove contingencies from your purchase offer. Otherwise, renegotiate around any flags raised during inspections, settle on new terms, and officially remove contingencies to move forward with the real estate transaction.
6. Meet Funding Requirements
Secure the remaining funds needed for closing besides the initial earnest money deposit. Normally, this simply means grabbing a cashier’s check from your bank to cover the final closing costs, minus the earnest money deposit.
This must be completed as quickly as possible to finalize the mortgage closing process, as failure to do so can lead to the deal falling through.
7. Final Walk-Through
Do a final inspection of the property to ensure agreed-upon repairs are completed, and no new damage has occurred. Ideally, this should be completed once a seller has indicated that all agreed-upon repairs or alterations have been completed, as this will be necessary to remove final contingencies.
8. Review and Sign Closing Documents
On closing day, the buyer will typically meet with a real estate closing agent at a specified location to sign the final forms and take possession of the home. Carefully review all closing documents, including the interest rate and agreed-upon terms, and don’t hesitate to ask questions or seek clarification.
9. Keys in Hand
Once everything is signed and finalized, the buyer will receive the keys to your new property. And so begins the trying process of moving and unpacking!
Real Estate Closing Final Thoughts
In most cases, closing is a simple but lengthy process that most real estate agents are well accustomed to. Just make sure to address any issues as they come up, and use information obtained wisely to lock in the best terms before the real estate closing day!
