What To Expect At Closing
Whether you're buying or selling a home, closing is where it all happens. Months of hard work and delicate negotiation are about to come to an end with closing. But even though this is the finish line you've been racing towards, the closing process can be a little mystifying — especially for first-time homebuyers, who have probably never had to deal with this much paperwork before.
If your closing date is looming and you're not sure what to expect, we'll walk you through it.
What is closing?
It may seem daunting to be confronted by a huge stack of papers at closing, but all you're really doing is finalizing the deal you've already agreed on. The seller is paid and signs over the deed to the property. The buyer pays the down payment and signs mortgage documents. Buyer or seller (or both, depending on how you negotiated the sale) will pay the various fees that make up closing costs.
There can be a crowd at closing, with the buyer, seller, lender, real estate agents, attorneys (if buyer or seller have them), and a title company representative all potentially having a seat at the closing table. But don’t be intimidated: it's all to ensure that all of the paperwork is correct and the sale goes off without a hitch.
After signing a lot of papers, the seller walks away with a check and the buyer walks away with a set of keys to their new home.
What do I have to do at closing?
You'll be presented with a lot of paperwork, all of which you should review to be sure it's what you expect before you sign it. If you're confused by any of the wording, ask before you sign — that's why everyone is there!
To help you get through the mountain of paperwork, it's a good idea to review it in advance. Before closing, ask the title company (sometimes called a settlement company) for copies of any paperwork you'll have to sign so you can familiarize yourself with each piece. You may not have final numbers for closing costs until a few days before closing, but you should get a Loan Estimate upfront that's pretty close. You should receive the Closing Disclosure at least three days before closing. If you have questions going through the paperwork, ask them now so they're out of the way — which will help make closing day go smoothly.
What should I bring to closing?
Both buyer and seller will need a government-issued photo ID, so don't forget your wallet. Sellers should also bring keys, garage door openers, codes to keyless entry systems, and any other methods of access to the home. You should also bring copies of any paperwork you have related to the transaction — while you may not need them, they can be helpful reference while you're reviewing the final documents to sign.
And then there's the matter of payment. Buyers will want to bring a cashier's check for their down payment, and both parties may be responsible for some of the closing costs. Your title company or real estate agent will be able to tell you the exact number and the best way to pay it.
How long does closing take?
Even the smoothest closing will probably take an hour — so don't try to cram it in on your lunch break. Plan on 90 minutes or more, but come equipped with plenty of patience, because going through the paperwork can take time.
What about taxes?
Home ownership can have some big tax benefits, but there's a significant tax burden with property taxes. Your title company should split up the cost of property taxes for the year between buyer and seller so that neither party is stuck with an entire year's tax bill. (A note to sellers whose property taxes are currently paid out of an escrow account: you usually have to handle property taxes out of pocket at closing and then get a refund from their mortgage company when the mortgage is paid off.)
If the home is going to be a primary residence, buyers should be sure they file for a homestead exemption for a tax break. The laws on homesteads vary state to state, so check with your real estate agent or title company to find out what you need to do.
Sellers also want to take note: if you're making a big profit off the sale, capital gains taxes could kick in — but if you're eligible for a homestead exemption on the property, that may limit the amount you have to pay. Your real estate agent may be able to offer you advice, but check with a tax accountant to be sure you know what will happen after your home sells. No one enjoys a surprise tax bill, so find out in advance.
Please consult a tax advisor for information on tax benefits/breaks.
What can go wrong at closing?
We've talked a lot about doing things to make sure closing goes smoothly — but just what can go wrong at closing? Last minute disagreements about costs can crop up, especially if one party wasn't clear on their financial responsibilities. One party or the other may not have met their obligations, like a property owner not resolving liens on the property before closing. Issues like this are why it's important to review the paperwork and understand your obligations — and your costs — before closing. If you don't, and problems like this crop up it could delay your closing, which can mean extra costs for everyone.
But not all problems are avoidable. Changes in finances may mean the buyer's mortgage loan fell through, leaving them without the cash to close.
While you can't guarantee that nothing goes wrong, being prepared means you're less likely to run into trouble at the closing table.