Closing day is the culmination of a weeks-long process that could include financial drama, tense negotiations and a lot of discussions with real estate professionals, lawyers and mortgage lenders.

Here’s a guide to navigate what happens after you sign the purchase contract until the day you get the keys to your new home—or complete your mortgage refinance.

What Is a Real Estate Closing?

A real estate closing is when you finalize the paperwork to purchase your new home or complete your refinancing arrangement. Once the paperwork is complete, you are the homeowner and responsible for what’s contained in every document you’ve signed, including a commitment to pay the mortgage installments for the entire term of the loan.

Although federal law allows for a right of rescission for people who are refinancing—giving them until midnight of the third business day after the transaction to cancel the mortgage—there is no such provision for new home purchases. Once you’ve signed the documents to buy a new home, they are official.

At the closing, buyers will sign a variety of documents formalizing their commitment that lay out their rights and responsibilities. In addition to discussing the paperwork with your real estate professional, lender and/or lawyer, you can review templates for some of the key documents through the Consumer Financial Protection Bureau’s website, including the promissory note, mortgage deed and initial escrow disclosure. The documents cover the arrangements between the buyers and sellers, and the buyers and their lender.

How to Prepare for Your Closing

There are several stages to the closing process, which can take several weeks to complete. In fact, the typical time to close after mortgage application was 44 days in July 2020 for all types of mortgage loans, according to the Ellie Mae Origination Insight Report. This several-week period allows buyers to finalize financing, review the property with professionals and potentially negotiate new terms. The closing process is much quicker for those paying with cash, possibly as little as one week if all purchase contingencies are waived.

Here’s a look at the stages of the closing process leading up to the real estate closing.

1. Signing the Purchase Contract

The closing process begins when you reach an agreement on a sale price with the seller and sign a purchase contract. The purchase contract becomes the most important document in the closing process, because it spells out the conditions of the sale, including:

• The timing of the closing process, including deadlines for various steps
• How the purchase will be financed
• What contingencies there are, if any, to the contract, such as allowing the sale to go through only if the buyers can sell their current home or letting the buyers back out if problems are discovered in the home inspection

If you already received a  lock in your interest rate or get a deadline for doing it.

Realize, however, that the commitment is likely conditional and has a designated time frame in which the final closing needs to happen. For example, the buyer might need to:

• Obtain a home inspection
• Maintain the same or similar income or credit score; if a buyer loses their job or makes a major purchase—such as a car or another home—the application could be in jeopardy
• Provide assurance that the down payment will be fulfilled

The final commitment letter will be issued shortly before the closing and will confirm the loan offer is final, without condition.

3. Complete Property and Title Review

During the closing process, the property will undergo extensive review, both physically and legally, and the results could easily confirm, complicate—or end—the purchase agreement:

• Appraisal. One of the first steps the lender will take once you’ve signed the purchase contract is to schedule an appraisal. A professional home appraiser, who is an impartial third party, will provide an estimated value for the property. If the value matches or hews very closely to the agreed-upon sale price (which it usually does) the loan likely can proceed.
• Home inspection. The buyer will pay for a home inspector to review the property and identify any issues—major and minor—that might need to be repaired. Usually the buyer and seller will reach an agreement on what the seller will fix before the buyer moves in, but if they can’t, most purchase agreements include a home inspection contingency that lets a buyer walk away. You might also want to get—or ask the seller to arrange—a pest inspection, to ensure there are no major issues, such as a termite infestation.
• Title search. Because the sale of a home is the transfer of a title from one person/entity to another, title companies will conduct a search before the closing date to make sure any issues with the title, such as a lien, are resolved.

Your Real Estate Closing Checklist

As you near your closing date, here are some things to put in place for the big day:

• Hire an attorney. If you don’t hire an attorney for the early part of the process—such as when negotiating and reviewing the purchase contract—you will want one for the closing to make sure your interests are represented. Consult early with your real estate professional and/or lender to find out when and why you might need one, and if they have recommendations.
• Review your loan. Three days before closing or earlier, you will receive a closing disclosure from your lender. This is your chance to review the loan amount, rate, amount needed for the down payment and other important information before the closing date. Contact the lender as soon as possible if you have concerns or questions. Take a look at the interactive Closing Disclosure Tool from the Consumer Financial Protection Bureau for more information.
• Determine how you’ll pay closing costs. You’ll need to get a cashier’s check that will cover closing costs, or records that show you sent the money via wire transfer. Buyers will pay from 2% to 5% of the purchase price in closing costs, which could include underwriting fees, including appraisal; title-related costs; loan origination points; premium for mortgage insurance (if you need it); attorney fees and home insurance premium
• Gather remaining documents. You’ll want to show you have secured homeowner’s insurance for the property, in case you are asked, but you’ll also want to have on hand: a government-issued photo ID; a copy of the purchase contract; key loan paperwork, such as the closing disclosure, in case you need them to review as you sign the closing documents and any documents that were pre-signed

Make sure to do a final walk-through on the property within 24 hours of closing. You’ll want to be sure the issues found in the home inspection are addressed—according to the agreement with the seller—and that everything else is in order.

Who Needs To Attend Your Real Estate Closing?

Technological advances and the coronavirus have changed the way closings take place, with some of them occurring remotely or with just a few people. If you have more time, the closing can occur by mail.

Your real estate agent as well as a representative of the title company—who will check your ID to make sure it matches the information on the contract—will likely attend, as well as your attorney. The sellers might also be there or an attorney to represent them.

Why Your Real Estate Closing Might Be Delayed

Closings can be delayed for a variety of reasons, some of which are under the buyer’s control and others are caused by the seller, lender or others.

Buyers can control, to some extent, the loan process as long as they provide the paperwork the lender needs as soon as possible, such as income statements and tax records. They also can make sure to set an inspector’s visit as soon as possible so there is plenty of time to negotiate potential repairs with the seller.

However, if the lender has a backlog of applications and isn’t able to schedule closings quickly enough, there could be a delay. It’s important that buyers know they can try to renegotiate a free or discounted extension of their interest rate lock with the lender if it expires before the closing takes place.

Buyers also can cause problems if they change jobs during the closing process and/or if their income level is affected in a negative way. It might take the lender extra time to follow up with the new employer to make sure they’re making as much income.

Throughout the closing process, buyers need to be in constant communication with their real estate professional, lender and, if needed, attorney to make sure the requirements set by the purchase contract are being met.

The best way to avoid drama in the closing process is to handle the things you can control correctly and promptly and be as prepared as possible for the unexpected situations that might crop up.

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