The Closing Process
The home buying process is full of paperwork, important dates, contracts, market movements and checklists that can even overwhelm seasoned real estate investors.
One of the main reasons to make sure you’re working with a professional real estate buying team, is the fact that you get to lean on their combined experience to ensure a smooth and painless closing.
Some agents and loan officers can close upwards of 20+ transactions a month. Compared to the 5-7 homes an adult may purchase in his/her lifetime, you can obviously see where it helps to have a few trusted professionals in your corner.
Helpful Link: Talk The Talk – Know The Mortgage Lingo At Closing
The closing process can be argued as the most critical part of a real estate transaction where the most amount of things can go extremely wrong. This is where that professional team will really prove their value.
If all of the initial questions, concerns, documents and contingencies were addressed early in the mortgage approval and home shopping process, then you should feel confident about walking into the closing process with all bases covered.
However, we’ve listed a few bullets, links and frequently asked questions on this page to help highlight a few important topics you may want to be aware of during the closing process.
Six Prior-To-Closing Conditions That Can Delay Your Escrow:
Even though your lender may have provided a Pre-Approval and/or Mortgage Commitment Letter, there may still be several conditions that could delay a closing.
Sometimes buyers and agents let their guard down with the relief of getting closing documents to title, and they forget that there may still be a bunch of work to be done.
Prior-to-Closing conditions are items that an underwriter would require after reviewing your file, which could simply be an updated pay-stub, a letter of explanation of recent credit inquiries or more clarification on information found in a tax return.
Here are a list of a few Prior-to-Closing conditions you should be aware of:
1. Updated Income/Asset Documentation-
You may have supplied your lender with a mountain of documentation, but make sure you continue to save all of your new paystubs and financial statements as you move through the process.
Chances are your lender will want updated documents as you get closer to closing.
2. Credit Inquires –
If you have had recent inquires on your credit report, a lender may check to see if any new credit has been extended that may not yet actually appear on your report.
An inquiry could be for something minor such as a new cell phone, but can also be something that will impact your ability to qualify for the loan such as a car payment or another loan that you co-signed to help out a family member.
……(read more on Credit Inquires)
3. Employment Verification-
Your lender will be making sure you are still actively employed in the position that is listed on your loan application, and they will do this more than once in the process.
So make sure regular life events, such as maternity leave or a scheduled surgery, have been brought to your loan officer’s attention ahead of time.
Once an underwriter starts to uncover surprises, they may hold a file up for a while to do a bunch of unnecessary digging to find out if there are any other issues that the borrower failed to mention.
4. Funds for Closing-
Lenders will want to source where every dollar for the transaction is coming from and verify that it has been deposited into your bank account. If funds need to be liquidated from a retirement account or home equity line start the process sooner rather than later.
Sometimes banks will not release all of the funds immediately after a large deposit so it is important to have these in place well ahead of your closing date. The same applies for Gift Funds-make sure the donor is aware of your time frame and is willing to supply the required documentation to your lender.
……(read more on Making Sure Your Cash To Close Comes From Proper Source)
5. Title and Judgment Searches –
Typically, title and judgment searches are performed farther along in the mortgage process because they are not ordered until after you receive your mortgage commitment. These searches could reveal judgments against your name or the sellers along with liens against the property you are buying or selling.
Sometimes, even an old mortgage appears against the property since it was never properly discharged, or if you have a common name items could appear that are really not yours.
Either way, the underwriter and title company will want to be sure that these are cleared up before the closing.
……(read more on Title and Judgment Searches)
6. Homeowners and Flood Insurance Coverage –
Lenders want to review your policy several days prior to closing to make sure coverage is sufficient and accurately account for it in your monthly payment.
Insurance coverage can sometimes be difficult to obtain depending your past history with claims, credit, location and type of the property.
……(read more on Homeowners and Flood Insurance Coverage)
Items To Bring To Closing Appointment:
Your real estate agent and/or mortgage loan officer should be providing you with a final list of documents that need signatures or updated verifications, so the general list of items needed at closing is quite basic:
1. Funds To Close –
If you are required to bring in a down payment and/or pay for closing costs to finalize the transaction, you’ll need to bring a certified check from a bank. The escrow company, your agent and loan officer should provide you with a full breakdown of all fees / costs involved in the transaction.
While these final numbers may be more accurate than the initial Good Faith Estimated which was provided at the beginning of the application process, there will still be a small buffer amount added by escrow to cover any prepaid interest or other minor changes.
If you don’t have to bring in any funds to close, then you might actually be getting a portion of the Earnest Money Deposit back.
Keep in mind, it is important to make sure these funds to close come from the proper sources.
2. Proof of Identification –
Official Drivers License or State ID card. Passports will work as well. However, a 24-Hour Fitness, Costco or other retail membership card won’t be acceptable.
Frequently Asked Questions:
Q: Does It Matter Which Day of the Month I Close?
The date of your closing is all about how you view the money being applied. Pay now or pay later, but it will always be collected.
Let’s first look at how mortgage payments are broken down:
When you pay your rent for the month, you are actually paying for the right to live in the house for the upcoming month.
However, your mortgage payment is broken into four separate components; principle, interest, taxes and insurance (PITI).
The principle is paid towards the upcoming month, interest is paid towards the previous month and the taxes and insurance are deposited into an impound account.
As far as closing on a particular day of the month to save money on interest payments, it depends on the type of loan program you are using.
If you’re more concerned about successfully closing with the least amount of stress, then early to mid month is usually the best time to close.
Q: I am refinancing an FHA loan, will it benefit me to close in the beginning of the month?
No, in fact FHA refinances should always close at the end of the month because you are responsible for the entire months interest.
Q: Should I be concerned about the closing date on a conventional loan refinance?
Not really, however you can save a couple dollars by closing early in the month, just avoid closing on a Friday because you could be responsible for the interest on two loans over the weekend.