The keys are almost yours. It’s been a long, stressful and frustrating journey filled with the fear of missing out on the home of your dreams, anxiously waiting for the next step, and negotiating all of the small details. But finally, your new home is within sight. All that’s left is the closing process.
Your realtor, lender, or friends who have purchased a home have probably thrown around terms like closing day or the closing process. This is a magical time and day when all of your hard work finally culminates and results in an orgasmic ecstasy as the silver or bronze keys are placed in your palms.
But what exactly is the closing process and what can you expect?
In this article, we’re going to cover many of the questions about closing that buyers, like yourself, have before you sign your name on all of the dotted lines and exchange the keys. You will learn what to look out for and expect so that there are no hiccups and delays that would prevent you from getting the keys.
If this is your first time buying a home, then first off, congrats. Second, be sure to pour over every single word as this article is full of tips, ideas, and charts to help make your closing process smoother.
For those who have bought a home 10 years or more, read the article too. A lot has changed in the last decade on how we approach real estate and closings. If it’s been less than 10 years, then this article should be a nice refresher.
Let’s begin by defining the timeline for the closing process — when does it begin and when does it end?
Closing Process Timeline
The end of the closing process is clear. It ends when the real estate transaction is finalized. It’s characterized by all of the final paperwork being signed, shaking hands and giving hugs (that might be only for those who close with me), and the sacred exchange of keys that is like passing of the Olympic torch.
What’s less clear, and what real estate agents have differing opinions for, is when the closing process begins. For some realtors, they say the closing process starts when the lender and title company give the “clear to close.” Meaning, you have been given the green light to sign all of the paperwork and close on your home.
I believe that the closing process starts sooner than that. It begins when your escrow account is opened and funded by your earnest money deposit. When you wrote an offer, it should have included a deposit that let the seller know that you are serious about buying the property.
It just happens that there is little work on your part that needs to be done until a week before closing. The reality is that your realtor is quietly working, without you ever realizing it, on some moving parts so that you can close on your home.
Below, I’ve created a timeline chart of the closing process. When certain events will occur and who is responsible for them — your realtor or you. The top line are items that need to be completed by or have been completed by your realtor. The bottom line are tasks that you have done or need to be done.
Before You’re Given The Clear to Close
The reason I operate under the mindset that closing starts when you deposit your earnest money is because there are a few things that will need to be done by you before you’re allowed to close on your home. First, you will need to have all of your paperwork into your lender so you can get a conditional pre-approval.
Second, and often unknown to buyers, you will need to get a homeowner’s insurance quote and provide proof to your lender before you can be given the green light. Did you catch that? I know I wouldn’t have.
The only time you can close without proof of a homeowner’s policy is when you’re paying cash for the home. Since most of us take out a mortgage, it’s the lender who requires the insurance. They want to protect their investment.
How much coverage you need on the home will depend on the requirements of your lender. Some will set a limit to your deductible amount, while others will require you to pay a year’s worth of coverage before the lender will consider closing on the home.
At the very least, lenders will require you to carry enough coverage to pay for the cost of rebuilding your home from the ground up — should a disaster occur. Your standard policy should protect you against hazards like, fire and lightning, damage from hail, theft, and more.
Brad Manzullo at Arnouts Insurance had this to say:
The best thing you can do is start shopping for insurance right after you make your first offer, be prepared while you are waiting to hear back because it doesn’t cost anything to get quotes on insurance. When your lender asks you for the insurance information, if you already have a competitive quote that fits you and your new home, then all you have to do is give the lender your agents name and contact information.
Lansing Local Insurance Agents I Recommend
- Tom Tederington, Farm Bureau
- Jared Feldpausch, Farm Bureau
- Katie Krick, Liberty Mutual
- Brad Manzullo, Arnouts Insurance
- Brian Kongstad, Allstate
Be sure to shop around on your insurance. Some companies will be able to better structure your quote the way you need to close on your home. For example, if you’re tight on cash or need more coverage because the lender requires it.
A final note before moving on: your standard homeowner’s insurance policy excludes flood damage. If it’s determined that your home is in a floodplain, your lender will require you to carry a separate insurance policy that is specifically for damages caused by flooding.
To address flood insurance, I had Brian Kongstad at Allstate provide some tips.
Floods are the most common natural disaster and it damages for millions every single year. 20% of flood claims occur outside of high risk flood zones. As we recently saw here in the Okemos area, we had severe flooding with Grand River and Okemos being flooded, and vehicles and houses being affected.
Your Standard homeowners and renters policy will typically not cover flood damage. That is where Flood Insurance comes in.
If your home has a mortgage and it is situated in a high risk flood zone, the mortgaged property has to have flood insurance.
If you are looking at a home that you fell in love with, your insurance agent should be able to tell if it is in a flood zone. Pricing can vary from properties outside of high risk areas (Called preferred risk) being quite affordable to properties with low elevation in high risk flood areas being quite a bit more.
Preparing For Closing Day
Once your paperwork with your lender is in order, you have provided a quote for insurance, and the appraisal is done, your file will go to underwriting and you will be given the green light to close.
At this point, you and your realtor will need to communicate with all of the parties involved to set a closing date. This can take a bit of work since you will need to find a time and day that works for you, the seller, the realtors, and the title company.
Under federal law, you will have to wait at least 72 hours, or three days, after you’re given the green light. This is to protect you as the buyer. In some cases, lenders will add more days to give themselves more time to prepare the paperwork for closing. For example, a local lender, MSUFCU, requires an eight day notice to prepare the closing packet.
So if you’re given the clear to close on Monday at 2pm, the soonest you can close is next Tuesday (8 days). You and all parties will need to confirm by 5pm that you can close on Tuesday. Otherwise, the start date becomes Tuesday and the soonest you can close is next Wednesday.
Of course, you can avoid this little hassle by trying to schedule more than eight days out. But I’m also aware that everyone is anxious and excited to close.
Every company usually has a waiting period or the soonest day you can close. It’s not just MSUFCU so don’t let that deter you from working with them if that’s what you believe is best.
When picking your closing date, I always recommend that buyers pick a Friday or Thursday if possible. This way, you can take the day off from work and have the weekend to move. Rather than closing and the home sitting vacant until you can move on the weekend. I also recommend closing in the afternoon, like after 12pm. We will discuss the why when we talk about the final walk-through.
One thing to keep in mind: while you can pretty much pick any date for closing, you will need to double-check you’re closing on or before the stated date in your purchase agreement. For example, if you’re agreement’s closing date is August 3rd, but you want to close on the 5th because it’s a Friday, then you:
- Will need to get an extension addendum agreed on by all parties
- Or close on or before August 3rd.
Your actual closing date is typically about a week after you’re given the clear to close. There are some cases and agreements where this is not the case, but these are situational.
The day you close on your home may be far from the closing date you set in your agreement. You will not get a clear to close one week before the date set in your agreement. If you do, it’s more coincidental.
After your closing date has been set, there are a few tasks you will need to complete before you show up at the closing table.
Review Your Settlement Documents
You have rights you are probably unaware of. To protect home buyers, the government mandates lenders and title companies to provide a closing statement, detailing all of the costs and credits to buying your home, at least 72 hours before closing. This document is called a settlement statement, closing statement, or HUD-1 statement.
The document shows all of your expenses associated with purchasing your home, as well as the money you will be providing to buy the home. For example, your down payment, closing costs, and your earnest money deposit.
It’s your right to review this document and ask any questions you may have. Be sure to take the time to review it and discuss the statement with your real estate agent or lender.
Any good real estate agent will be happy to review the statement with you. And any great realtor, as a way to provide more value to their service, will review it for you and discuss it with you.
But not all will. Some are too busy, some forget, and others have no clue how to read the statement either.
Ultimately, it’s your responsibility to review the statement and make sure everything is right for one of the largest financial decisions of your life.
Yes, I know the statement confusing to read and makes very little sense unless you have experience in the real estate industry, accounting, or you have bought several homes.
It’s a good idea to review the statement because people make mistakes and terms are miscommunicated. As a result, you could end up paying more than needed.
For example, I reviewed the closing statement for one of my clients about 48 hours before closing and found a double-charge. My client had paid for their home inspection at the time of service, but the lender was charging them at closing. Had I not caught this charge, my clients would have paid for a home inspection twice.
How to Read a Closing Statement
A closing statement is composed of three primary categories — an item description, credits, and debits. The layout of a statement might look different but those are the common elements to every statement.
There’s a long list of items you might see on your closing statement, but the most basic are:
- Points — these could be origination points for initiating the loan or points to pay down the interest rate of the loan. These are fees associated with your lender.
- Appraisal — the charge to hire an appraiser to determine the value of your home.
- Flood Determination — a fee paid to a third-party to determine if your property is located in a flood zone.
- Title Insurance — Protects you and the lender from the event the seller, or previous seller, was unable to provide a free and clear title.
- Title Search — fee to search public records of the property you are purchasing.
- Recording Fees — paid by you or the seller, depending upon your agreement of the sale with the seller.
- Real Estate Fees — the small fee that the real estate broker might charge you. In the Lansing real estate market, this is around $200 to $500.
For the most part, understanding this section is the easy part. What is confusing is determining if these items should even be on your sheet. For example, is the recording fee what we typically see in the industry? Or are you being overcharged?
Without experience, you really have no idea. Sure, you can probably figure out if line items like homeowner’s insurance is right. But those real estate related terms create a lot of uncertainty. It’s why it’s a good idea to review it with your realtor.
The next two columns to a closing statement are credits and debits. Credits can be defined as money you’re getting or bringing to the closing table. Debits are amounts you have to pay or are being charged for.
Credits
Examples of credits include your down payment, the loan amount you’re receiving, your earnest money deposit, and any prorated credits or credits given by the seller. Let’s discuss what I mean by prorated credits and those given by the seller.
Prorated credits given because of expenses that the seller underpaid. For example, assume the seller lived in the home for four months of the six month tax period and paid NO taxes. The tax amount is $1,200 for six months, or $200 per month.
The seller will be required to credit you four month’s worth, or $800, of the property tax bill. That’s because you will be required to pay for six months, or $1,2000, with $800 of that coming from the seller.
This way, you only pay taxes for the time you lived in the home
Sellers may give credits to buyers for any purpose. The most common is for repairs and upgrades. For example, sellers may give a buyer money for a repair rather than having to handle the repairs themselves. This allows the buyers to choose the materials and vendors themselves.
I have done this with plenty of my clients. A recent example was when there was about a $1,000 worth of repairs that needed to be done. Rather than having the seller do it, we requested a credit so that my buyer’s could select their own vendors and supplies. This reduced the amount of money they needed to bring to the closing table.
A more common example of a credit is seller’s concessions, which is when the seller pays for some of the closing costs. This is typically anywhere from zero to six percent of the loan amount.
Debits
Debits are expense amounts required for completing the purchase of the property. This includes items like title insurance, origination points, your earnest deposit, and prorated debits.
Just like credits can be given for property taxes, so can debits. For example, if a seller lived in a home for three months and paid ALL six month’s worth of taxes, then you will be debited three month’s worth of taxes. That’s because the seller paid for six months but only used three months. You will need to reimburse the seller and your next tax bill will be due in three months.
There is one important rule to a closing statement. The total buyer’s credits and debits must balance, or be equal. Often, at the bottom there is a forced payment as the final step to making both columns equal. That forced payment amount is typically the amount that you will need to bring to the closing table.
Do a Final Walk-Through
In most real estate markets, it’s common for the agreements to include a clause that gives the buyer a right to do a final walk-through within 48 hours of closing. This allows buyers to make sure all conditions of the agreement have been met. Be sure to double check your agreement if this clause exists. In the Greater Lansing Association of Realtors, it does.
I recommend that you do a final walk-through a few hours before closing so that there are no surprises after closing.
There have been cases where a buyer walks through the property, with the seller still living there, 48 hours before closing, and when they finally get the keys to their house, things are gone that they thought were staying — drapes, fixtures, and more.
These are issues that need to be addressed before closing. Once the papers are signed, fixing anything becomes incredibly difficult. The only solution is mediation or litigation.
If the home is vacant, it’s still a good idea to schedule the walk-through within a few hours of closing. What happens if you check the home two days prior to closing but a pipe bursts one day before the closing? Then what will you do?
Scheduling your walk-through hours before closing is a great way to make sure everything is okay before you sign the papers. This is the reason I recommend scheduling your closings for the afternoon. It gives you a chance to do your walk-through in the morning.
Listen to me very carefully here. When you go to do your final walk-through the house will look very different than you remember and you will start to doubt your decision to buy this home.
That’s perfectly normal and often irrational. This is for two reasons:
- It’s probably been about a month since you last stepped into the house. It’s usually about 30 days, or more, between your home inspection and the closing date. You’ve had time to forget what the house was really liked and began imagining what it was like.
- You’re scared. You’re making a big purchase decision and stuff suddenly becomes real. You start looking for every reason NOT to purchase the home. Finally you notice the chipped paint or that a bathroom is a bit small.
Again, this is normal. But remember, there was a reason you chose THIS home. Remind yourself of that when you’re doing your final walk-through. Trust that you made the right decision when you decided to write an offer on this home.
Switch Utilities to Your Name
This is a small detail that all parties to the transaction forget about. It’s not a requirement to close and so many people aren’t worried about. For most agents and lenders, getting your utilities turned on isn’t their concern. They just want to get to the closing table. Everyone does, even you.
But please, please make sure that you call the utility companies and switch everything into your name. I don’t want to hear you tell me a horror story like this buyer who forgot to switch the utilities over.
On March 12th the buyers closed on a home. For some reason, they assumed the utilities would be rolled over into their name. The sellers called the utility company to switch the electricity and heat off by the 14th.
The buyers had no clue they were suppose to put the utilities in their name since nobody mentioned it. On the 17th, they finally started moving in and realized the utilities had shut off. They called the utility company to turn everything back on.
The next day they came back there was water spewing out the pump outside the house. The inside was flooded and everything was damaged. Since the heat was turned off, all of the pipes froze and burst when they turned it back on. They faced thousands of dollars in damage.
This buyer hopefully had some good insurance. It was their job to make sure the utilities were in their name.
Yes, I hope that your realtor or lender will tell you, but it ultimately your responsibility. An agent who reminds you is one that offers an extra bit of service to their clients.
If you’re moving into the Lansing area, you can access a list of all major utility providers by accessing this sheet.
The seller is responsible for utilities up to the day of closing, so make sure you have everything switched over into your name before closing. This is especially important for those who live in winter states like Michigan.
What To Bring
When you show up to closing, there are a few things that you will need to have with you. There are really only three things:
- Sufficient and certified funds
- Your driver’s license
- And a great attitude and hand ready to sign everything
As I explained a bit earlier, your closing statement will have an amount that you will need to bring to the closing table. This amount can vary greatly depending on your sale price, how much your financing, the terms of your loan, and if you have any seller’s concessions.
Your lender will require you to bring sufficient funds (in the amount on the closing statement), and for these funds to be certified. But what exactly does “certified funds” mean?
Certified funds are monies that are guaranteed to clear by the bank. There are two ways that you can provide certified funds: a cashier’s check or a wire transfer.
Your check or payment will be made payable to the business where you are closing — in most cases. In Lansing, this tends to be the title company, but double check with your realtor or lender.
How to Get a Cashier’s Check
To get a cashier’s check, an account holder (you) goes down to the bank, provides identification and requests a cashier’s check from the teller. You will need to have cleared funds in your account to get the check. While there, the teller will:
- Request the name of the payor: This is often the title company. For example, Liberty Title or TransNation.
- The Amount: Your lender should have told you the amount you need to bring. It’s also listed on your closing statement.
- Request Your ID: A driver’s license is sufficient. You could bring a passport if you wanted.
- Verify Funds: the teller will make sure that you have enough funds before the issue the check.
- Draw Check: Not literally draw. They will print the check with your name and the payee’s, sign the check and hand it to you.
It’s a simple and straightforward process. Depending on where you bank, they may charge a small fee for this service. It’s usually around $10.
Getting a Wire Transfer
A wire transfer is a way to deliver funds electronically from your account to another entity’s account. It’s exactly like transferring money from one of your accounts to another account of yours. The only difference is your transfering the money to a third-party.
You can do a wire transfer in person, over the phone or in some cases on the internet. To wire the funds, give the bank the wiring information and account numbers.
Then, try not to feel like an international spy, because the only other time you hear about money being wired is when Jack Bauer is yelling where are the funds.
Wiring money is a convenient option for those who may not be able to get to order a cashier’s check. For example, this can happen for buyers who have all of their money at a local bank in Texas but already moved to Michigan a week ago. They’re not going to go back to Texas to get a certified check.
As convenient as it is, there are some safety and security issues you need to be aware of if you plan to wire your money. Hackers have been targeting buyers and sending fake wiring instructions in an effort to steal their money.
The average real estate transaction has a lot of people emailing and communicating back and forth. This includes buyers, sellers, lenders, and title companies. Intelligent hackers try to get into one of the parties’ emails and follows the transaction along until they can send bogus wiring instructions to buyer or the agent — supposedly from one of the parties involved in the transaction.
Buyers will receive their initial closing documents and wiring instructions, then at a later date the same document with different wiring instructions is received. The buyer then wires the funds in accordance to the second email that DID NOT come from any party involved. By the time this is discovered, the money is lost.
There are a few things to do if you plan to wire your funds:
- Double check, over the phone, all of the wiring instructions. Triple check you have the right account numbers.
- Always use the contact information from the past email, not the new one. Avoid anyone who refuses to talk on the phone.
- Be aware that it’s rare for someone to request funds to be wired days prior to closing. And be cautious of last minute instructions, particularly if they contradict earlier instructions.
- Never transfer information over free Wi-Fi.
Lisa Haun, account executive at TransNation had these tips to share about wiring funds.
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“In the recent year’s cyber fraud and bank wire hijacking has become alarmingly familiar. Nearly everyone in the real estate business has heard a horror story.
Here is what is happening. A professional hacker impersonates a buyer, seller, realtor or title agent’s email. They fish for victims by monitoring key words associated with real estate transactions in emails. They change the email address ever so slightly and request a change in wiring accounts. In many cases, the unwitting agent grants the request and wires the money to the criminals account.
Red flags in email include unfamiliar grammar and language or tone, last minute changes, change to email address and lack of social niceties. However, lately the hackers have become more savvy.
Strict wiring procedures and public education is critical to ending this crime. If it is necessary to have proceeds or down payments wired, the instructions should be hand delivered. Unfortunately, those who have fallen victim may still be awaiting reimbursement and vindication.”
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Unfortunately, these best practices are no guarantee. You have to be vigilant if you plan to transfer your money and make sure that you work with an agent or brokerage who places a priority on data security. Hopefully you talked to your realtor about their data security policy before you hired them. But if you are like most buyers, data security is the last thing you think about.
Over the course of a transaction, you’re giving away a ton of personal information to a local, small-business (even if it’s a franchise since they’re independently owned and operated). And over half of the hacks that happen, target small-businesses.
Each agent and broker will have their own data security policy. I want to talk a bit about how brokerage models work so that you have an understanding of how it affects the safety and security of your data.
Real estate brokers either:
- Operate lean and provide little support for their agents in exchange for higher commission rates and low fees to the agent.
- Provide massive support for their agents with lower commission rates and higher fees.
- Or fall somewhere in between.
There is nothing wrong with any of these model. They each have their benefits and disadvantages. What’s important is that you’re aware of them.
Brokers that operate with a lean model are less likely to have a company-wide security policy and infrastructure than those who provide a lot of support to their agents. It simply comes down to revenue.
Since lean brokers are giving most of their revenue to an agent, there aren’t enough funds to hire the best IT staff and build a strong security infrastructure. Lean brokers leave it up to the individual agent to create their own data policy.
And most agents, have no policy at all because they’re unaware of the threat or they’re a “part-time” agent that doesn’t produce enough revenue to invest in a security policy. With limited support from their broker and being unaware of any security threat, your data is least secure with this kind of agent.
It’s these agents that are usually using emails like “name@gmail.com.” These emails are more susceptible to a hack because hackers are regularly trying to tap into those high-volume servers. This puts your information at risk.
The second type of broker will typically provide support and have a data security policy in place for all of their agents. This type of broker is able to do more than the individual agent because they are pooling money together. They can hire the best security and more.
Make sure the company that you work with has a data security policy in place. How does your realtor keep private information safe? Do they have a solid explanation for wiring funds?
What to Expect
On the day of closing you should expect a few things. First, plan on the room being full of people. It’s common for the real estate agents, mortgage lender, and the seller to show up — in addition to the one or two people from the title company that will be helping you sign all of the papers.
It could be more. You might feel the need or desire to bring your parents along with you. I find many first-time homebuyers like to bring their parents with them.
The most I’ve had in a room is 12 people. It was a packed room. I’ve also been to closing where only the buyer and I are there because the seller signed the paperwork at a separate time.
Depending on where you live, you could close in a number of places. First, you could close at the title company, a lawyer’s office, or somewhere else. It’s common for the seller to pick the location. In the Lansing area, we close at the title company a majority of the time.
It will take you 45 minutes to one hour to close and sign all the papers. Half of your paperwork will be from the lender and the other half from the title company.
A few documents that you will be signing at closing are:
- The closing disclosure — you have already seen this and nothing on it should have been changed without your notification. Go ahead and sign this if everything looks right.
- Promissory note — this is the document that promises you will repay the loan to your lender. It provides details about your loan, like the amount you owe, loan terms, etc. The note explains the consequences of not paying your mortgage.
- Deed of Trust — this transfers legal ownership of the property with the condition that the lender may foreclose on your home if you fail to repay the loan.
- Satisfactory walk through — you will sign a document that states you had a satisfactory walk through the day of or before closing and that everything looks good.
Once you’re done signing, you should be given the keys and anything else you might need with the home — this can include a garage opener or security alarm codes.
Anticipate last minute details and something to go wrong. If the project has been carefully managed, your potential for something to go wrong on the day of closing is small. However, there are things that are out of our control — no matter how well the project was managed.
After Closing
A giant boulder is lifted off your shoulders after closing. You will almost feel this emptiness. I mean, for the last three or more months, your life has been about buying and closing on a home. And now, you’re done. All that’s left is to move in.
After closing, I give everyone a high-five and a hug. This is a joyous moment and you should feel very happy. It will feel very unreal and that the home is finally yours.
When you walked out of the closing, you will likely have been given a ton of papers. Be sure to keep them and hold onto them. They will come in handy in the year following. For example, it’s a good idea to keep your closing statement because you will be able to use deduct some of the expenses on your taxes.
In the week following your closing, you should be sure to send your realtor a referral and leave them a review on sites like Zillow and Trulia. In the month following, you will get your first mortgage statement and bill. Should you have any questions, be sure to contact your lender.
And the last thing I always recommend to anyone closing on a home is to change the locks the first week you’re in there. You have no clue the number of people that have a key to your home because the seller gave one to them. While this isn’t a major threat, it’s better to be safe than sorry.
You’re almost there. Follow the tips and ideas in this guide and your closing process will be much smoother.
