What Happens on Closing Day for the Home Buyer?
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We receive a lot of questions from our readers relating to the closing process. But there's one question that rises to the top in terms of frequency: What happens at a real estate closing, from a home buyer perspective?
Most people realize they'll be signing a lot of documents at the closing. (And that much is true.) But the rest of the process can be something of a mystery to the average home buyer — especially first-timers who've never been through it before. So let's take a closer look at what happens on closing day for home buyers.
What Happens at Closing for Buyers
In a real estate context, the word "closing" is basically synonymous with "signing." Reviewing and signing documents is the bulk of what a home buyer does during this process. But that's not all that happens.
At a glance: During a real estate closing, the property title and ownership get transferred from the seller to the buyer. The home buyer will sign a variety of documents prepared by the escrow / closing agent, and will also pay whatever closing costs are due. Agent commissions and other funds are distributed by the escrow agent. Congratulations, you're now a homeowner.
This process is usually managed by an escrow agent. This is a person (sometimes and attorney) who specializes in handling real estate closings and preparing the related documents.
The process can vary slightly from state to state. In some states, the home buyer and seller can close separately at different dates and times. In other states, both parties attend closing at the same time and sit at the same table with their respective real estate agents and/or attorneys.
While the logistics can vary from one state to the next, the steps are basically the same.
Here's what usually happens at closing:
- The home buyer will bring a cashier's check to cover all remaining closing costs and fees.
- The property title will be signed over from the homeowner to the buyer, thus transferring ownership.
- The closing agent (or in some cases a lawyer or notary) will register the new deed with the appropriate government office. After that, the home buyer will be listed as the official owner of the property.
- The real estate agent(s) involved in the transaction will receive their commission fees.
- The seller will receive any proceeds they earned from the sale, once their mortgage balance and closing costs have been paid off.
Documents, and More Documents
As noted earlier, there are quite a few documents for home buyers to sign on closing day. After all, a real estate transaction is a complex process that involves a lot of paperwork. Fortunately, the escrow or closing agent will do much of the "heavy lifting" here. He or she will have all of the required documents prepared and ready for the buyer's signature upon arrival.
It's not uncommon for home buyers to sign their names a dozen or more times, before all is said and done. There are mortgage-related documents, legal disclosures, tax records and more.
As a buyer, you will probably have to sign the following documents at closing:
- Property deed
- Bill of sale
- Transfer tax declaration
- Mortgage agreement and note
- Closing Disclosure
When the buyer finishes signing all of the closing documents -- and all funds have been properly distributed -- the deed of ownership will transfer from the homeowner to the buyer. This is when you become a homeowner. If you're at a joint closing, the seller will hand over the keys. If you close separately, the seller's real estate agent might deliver the keys. It varies.
So that's what happens when closing on a home, from a buyer's perspective. Now let's take a step back and look at what happens the week before you close.
The Week Before: Events Leading Up to Closing
The week before closing can be a stressful time for home buyers. Knowing what happens in the days leading up to this process can reduce some of that stress. It can also help ensure a smooth transaction.
Here's what usually happens the week before closing, for the buyer:
- Your mortgage lender will send you a "Closing Disclosure" a few days before the close.
- Among other things, this disclosure shows how much the buyer has to pay in closing costs.
- The buyer will obtain a cashier's check in the amount stated in the disclosure.
- In some cases, he or she might wire the money to the title / escrow company, instead of paying via cashier's check. It varies.
- Buyers typically bring a copy of the homeowners insurance policy to the closing, or an insurance "binder." (Ask your lender what they require.)
- In some cases, last-minute underwriting issues might also be resolved during the week before closing.
How Home Buyers Can Prepare for the Process
As a home buyer, there are certain steps you can take to help keep the process on track. Knowing what happens on closing day is a good first step, and we've covered much of that above. Here are some other tips:
1. Start saving money as early as possible.
We've talked about the various costs that buyers have to pay on closing day. These can easily add up to thousands of dollars. So it's a good idea to start putting money aside early on. The sooner you start, and the more you can save, the better.
2. Keep an eye out for your Closing Disclosure document.
This important document will contain details about your home loan, your monthly mortgage payments, and your closing costs. It will tell you how much you actually have to pay when you close. It also provides a line-item breakdown of the individual costs and fees.
View a sample disclosure (PDF)
According to the Consumer Financial Protection Bureau:
"The lender is required to give you the Closing Disclosure at least three business days before you close on the mortgage loan. This three-day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate that you previously received from the lender."
3. Get your cashier's check or wire transfer squared away.
Talk to your mortgage loan officer and your escrow agent to determine your payment method for closing costs. Many home buyers pay via cashier's check, while some use wire transfers. This is something you'll want to figure out the week before closing, or maybe even sooner.
4. Stay in touch with your key points of contact.
Your real estate agent, loan officer, and escrow agent can answer questions you might have relating to the closing process. Be proactive. The week before, send each of them an email and ask if there's anything else they need from you.
This article explains what happens on closing day for the home buyer. If you would like to learn more about this topic, follow the hyperlinks above or visit our learning center.