Your long home-buying journey is almost over. You found the home you love, the seller accepted your offer and now it's time for closing. Of course, there's a lot to think about right now, and the last thing you want is something to go wrong. So make sure you work with an experienced closing agent to help ensure the details come together and everything runs smoothly. As soon as the sales contract is signed, the behind-the-scenes work can begin. The closing process usually takes 30 to 90 days. Read on to learn what happens during each stage of the process.
1. Select a Closing Agent
If you're working with a real estate agent, with your permission, he or she may place an order with a closing agent as soon as your sales contract is accepted. The closing agent can be a title company, an escrow company or a settlement company.
Most homebuyers rely on their real estate agent to select a closing agent – someone they work with regularly and know to be professional, reliable and efficient. However, you can choose your own closing agent if you wish. The closing agent will oversee the closing process and make sure everything happens in the right order and on time, without unnecessary delays or glitches.
2. Draw up an Escrow Agreement
First, a contract or escrow agreement is drafted, which the closing agent reviews for completeness and accuracy. The closing agent will also put your deposit into an escrow account, where the funds will remain until closing.
3. Title Search is Conducted
Once the order for title insurance is placed, the title company conducts a search of the public records. The search should identify any issues with the title such as liens against the property, utility easements and so on. If a problem is discovered, most often the title professional will take care of it without you even knowing about it. After the title search is complete and certain requirements are satisfied, the title company can provide a title insurance policy.
4. Shop for Title Insurance
There are two kinds of title insurance coverage: a Lender's policy, which covers the lender for the amount of the mortgage loan; and an Owner's policy, which covers the homebuyer for the amount of the purchase price. If you're obtaining a loan, the bank or lender will typically require that you purchase a Loan policy. However, it only protects the lender.
It is always recommended that you obtain an Owner's policy to protect your investment. The party that pays for the Owner's policy varies from state to state and can be a negotiable item in the sales contract, so ask your settlement agent for guidance before closing.
5. Obtain a Closing Disclosure
Your lender or your closing agent at your lender's instruction must provide a Closing Disclosure to you at least three days prior to consummation of the loan, which in some states may be the same time as closing. The Closing Disclosure provides disclosures that help you understand all costs of the transaction, including key information like the interest rate, monthly payments and costs to close the loan.
If you or your lender makes certain significant changes between the time the Closing Disclosure form is given to you and consummation, you must be provided a new form and an additional three-business-day waiting period after receipt of the new form. This applies if the creditor:
- Makes changes to the APR above ⅛ of a percent for most loans (and ¼ of a percent for loans with irregular payments or periods)
- Changes the loan product
- Adds a prepayment penalty to the loan
- If the changes are less significant, they can be disclosed on a revised Closing Disclosure form provided to you at or before closing, without delaying the closing.
6. The Finish Line: Prepare for Closing
As closing day approaches, the closing agent orders any updated information that may be required. Once the closing agent confirms with the lender and the seller, he or she will set a final date, time and location of the closing. On closing day, all of the behind-the-scenes work is complete. While you've been busy packing, ordering utilities and coordinating the movers, your closing agent has been managing the closing process so that you can rest assured, knowing all the paperwork is in order.