The closing process is the final step of a real estate sale. It can take a couple of months between signing a purchase and sale agreement and finally closing the deal. For homebuyers, closing day is when they officially take ownership of the property. For home sellers, closing day is when they’ll receive proceeds from the sale.
What happens during those couple of months is important but oft-forgotten so we will go over all of it including:
- Escrow
- Title search and insurance
- Home inspection and appraisal
- Negotiating repairs/credits
- Reviewing and signing documents
- Final walkthrough
- Closing day
Open an escrow account for the closing process
What is an escrow account? It’s a financial tool that holds funds for a specific purpose, usually until a transaction is complete. In a real estate sale, a homebuyer’s initial deposit is held in an escrow account managed by a third party until the sale is finalized.
The purpose of an escrow account in this case is for that initial deposit – sometimes called good-faith or earnest money – to be put into the escrow account. Required escrow is often around 1% to 3% of the asking price for a home. The money is required to ensure the prospective buyer is serious about their intentions to purchase the home and has the funds to do so. In return, the seller will usually take the property off the market and allow the buyer to perform home inspections.
The money in escrow is only transferred to the seller once all the conditions for the sale are met and the closing process is finished.
Title search and insurance
During the closing process, a title search is performed to review public records to confirm a property’s legal ownership and identify any issues that could affect the homebuyer’s rights. It’s typically conducted by a title company or real estate attorney.
Issues that could arise during this search include outstanding debts, legal claims from previous owners, incorrect property boundaries, restrictions on the property’s use, and easements that allow others to use the property without the owner’s permission. A title search protects both the buyer and the lender from unexpected issues. It’s required for any real estate transaction that requires title insurance, which is the case for most homes purchased with financing.
Title insurance protects homebuyers and mortgage lenders from financial loss and legal expenses if your property’s title has defects. It’s a one-time premium paid at closing on the property, and it’s different from homeowners insurance.
As a homebuyer, your owner’s title insurance is normally paid for by the home seller. It covers:
- Unpaid property taxes
- Fraud or forgery of previous paperwork
- A spouse or unknown heir claiming ownership of the property
- Outstanding liens
- Conflicting wills
- Code violations
- Legal complications
However, homebuyers will be asked by their lender to purchase a lender’s title insurance policy before obtaining a home loan. The policy is usually issued by the title company.
Home inspection and appraisal
At this point in the closing process, homebuyers will want to pay for a home inspection. The inspector will uncover any repairs that need to be made and then the buyer has the opportunity to walk away, buy the house as-is, or negotiate for the seller to make repairs.
An appraisal, however, is an estimate of a home’s fair market value performed by a licensed appraiser. Homebuyers are usually required to have an appraisal to ensure that the loan amount a lender has pre-approved them for can cover the cost of the home and that the home is worth enough to secure the loan. The homebuyer must pay for the appraisal, but the mortgage lender typically hires the appraiser and arranges the process.
Negotiating repairs or credits
As we stated during the previous section, if an inspection unearths any serious issues, you have three options:
- Request the home seller to lower the overall price or offer a credit on the purchase
- Ask the seller to pay for repairs
- Back out of the purchase
It’s reasonable to request repairs for any problems in the home that lead to health or safety concerns or if the damage is at risk of becoming worse and significantly impacting the value of the home. Even though it is common to negotiate any unknown repairs, the home sellers do not have to agree to do so.
We have a blog covering how to ask for repairs following an inspection if you would like more detailed advice on the topic.
A seller credit, however, is a type of concession in which the home seller offers the buyer money during the closing process. Most often, seller credits are used to subsidize a buyer’s out-of-pocket closing costs or cover the cost of needed repairs. Why would you do this as the seller instead of just completing the repairs? You can continue the closing process instead of waiting for repairs to be completed to close.
Other examples of seller credits are covering closing costs and incentivizing buyers for a fast sale (seller’s home warranties).
Review and sign documents
There are many closing documents that need to be reviewed and signed to transfer ownership of the home.
The following is a list of forms the homebuyer will sign during the closing process:
- Closing disclosure – defines the parameters and costs of the mortgage, including the loan amount, interest rate, monthly mortgage estimate and closing costs. Lenders are required to give this to homebuyers at least 3 business days before closing day so they can understand the agreement and notify the lender of any errors.
- Loan estimate – tells homebuyers the monthly mortgage payment, closing cost details, how your interest rate affects your expenses, property appraisal and homeowner’s insurance. Homebuyers should receive this 3 days after submitting a loan application.
- Proof of homeowners insurance
- Loan application – homebuyers should receive a copy of their loan application to review at closing.
- Mortgage note – a contract stating the homebuyer will repay the lender the amount borrowed to purchase the home. The mortgage note specifies the monthly payment, how long payments will last, the amount the home buyer is borrowing, the interest rate, any prepayment penalties, and the consequences for late payment or default.
- Escrow account statements and documentation – describes how much of your monthly payment will cover your property taxes and homeowners and mortgage insurance premiums.
- Deed – transfers ownership of the home from the seller to the homebuyer. The seller, or grantor, must get the deed notarized for it to be valid for closing.
- Title – defines ownership rights over the home.
The following is a list of forms the home seller will sign during the closing process:
- Bill of sale – indicates that the former owner of the form has sold the home to the buyer.
- Certificate of title – declares who the owner of the property is.
- Deed – the home seller must also sign the deed to transfer the title to the homebuyer.
- Mortgage loan payoff agreement – if applicable, this guarantees the seller will pay off the outstanding balance on their mortgage.
- Bill of sale for personal property – if there were any personal items included in the home sale, this must be filled out and signed.
Final walkthrough
The final walkthrough during the closing process is the buyer’s last opportunity to ensure that the home is in the agreed-upon condition before the sale is finalized. Typically conducted within 24–48 hours before closing, the walkthrough allows buyers to confirm that the property meets their expectations, all agreed-upon repairs have been completed, and no new issues have arisen since their last visit.
Homebuyers should ensure that appliances, fixtures, plumbing, HVAC, and electrical systems are in working order. We also recommend you open and close all doors and windows, and test locks for functionality. Finally, now that all of the previous occupant’s belongings should be moved out, you have a better opportunity to look for signs of pest infestations, such as droppings, nests, or damage.
If buyers find any of these issues, they can address them with their real estate agent, who may negotiate repairs, credits, or adjustments with the seller.
Closing Day – Funds Transfer and Key Exchange
Closing day is the final step in the home-sale closing process, where ownership officially transfers from the seller to the buyer. This day typically involves a meeting at a title company or attorney’s office, where documents are signed, funds are transferred, and the keys are handed over.
On this day, the buyer reviews the Closing Disclosure, which lists all fees and costs associated with the loan and the sale. This document was already provided in advance, but it’s reviewed once more for accuracy. The deed of trust or mortgage note is signed by the buyer which officially makes the property collateral for the loan. The title company ensures that all documents related to transferring the title are in order. Also, the settlement statement which itemizes all transaction costs and fees for both buyer and seller is reviewed.
Both parties will have some documents to sign. The buyer signs the mortgage note, mortgage, or deed of trust (if applicable) and various other loan documents if they are financing the purchase. The seller signs the deed, transferring ownership to the buyer. They may also sign affidavits, disclosures, and tax forms.
Then, the buyer wires the down payment and closing costs to the title company or escrow account. If there is a mortgage, the lender will wire the loan amount to the escrow account. The title company or escrow agent will disburse funds to all parties involved including paying off the seller’s mortgage, paying real estate agents’ commissions, and handling any other closing costs.
Once all documents are signed and funds are confirmed, the title company prepares the new deed with the buyer’s name. The title company will also submit the deed to the county recorder’s office, officially transferring ownership. This ensures public record of the buyer’s ownership.
Finally, the seller hands over the keys, garage openers, and any security codes, granting the buyer access to the property. The buyer and seller will arrange for the transfer of utilities, mail forwarding, and any other necessary services. Both the buyer and seller will receive a final confirmation of the completion of sale along with copies of the signed documents to keep for their records.
This completes the closing process!
Our clients aren’t in the dark during the closing process
No matter who your real estate agent is, we encourage both homebuyers and sellers to ask questions and stay informed throughout the closing process. That being said, agents at Partin Real Estate will always let you know where your transaction is at. If you would like to learn more about buying or selling a home in the Bolivar, MO and SWMO area, give us a call 417-326-4270 or fill out the contact form on our website.
