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The last and most important process to a real estate transaction is Closing. The contract along with release of inspection contingencies is submitted to the title company and the title company begins its important work.
The closing date is typically set 30 to 45 days from writing of an offer. Some agents give five to seven extra days for scheduling inspections and removal of contingencies. A cash transaction can be processed in seven to ten business days.
A conventional mortgage process along with closing can take around 30 days. FHA or a VA mortgage takes around 45 days. A rehab loan can take close to 60 days.
Once the contract paperwork has been submitted, the title company creates an “order” for settlement services. It is a multi-step process completed by many professionals including attorneys, settlement coordinators, and various specialists.
There are several steps in the real estate closing process, see them below:
The ‘title search,’ or a very thorough title examination, is done by a title examiner looking at the chain of title of the home. The title examiner is looking for title liens like outstanding loan balances, home equity line of credit, unpaid real estate taxes, unpaid water bills, judgement affecting the title, unreleased ownership claims, or defective former deeds in the chain of ownership.
Once it is determined that there are no issues with the title of the home, the file gets passed to the processor. At this stage, the buyer’s lender works closely with the title company, relaying the buyer’s loan terms and closing date details.
The title insurance underwriter reviews the completed title search, contract, any other relevant paperwork, looking for possible risk in the transaction. The goal is to make sure the seller has true ownership, and that there are no liens, judgments, or anything else that may need to be resolved. If everything looks good and the title is ‘clean,’ the title insurance underwriter provides a commitment letter (title binder) to the lender, stating the status of the title and commitment to insure.
If a buyer is obtaining a loan for the purchase, the buyer must purchase home insurance for the value of the home. The least expensive policy is usually obtained through the same company that insures the buyer’s cars. The policy covers damages from storms, fire or any other unforeseen event. It is a lender’s requirement that a buyer purchase such coverage. Should something happen to the real estate that the lender agreed to finance, the insurance is there to protect this investment.
Once the lender gets a “clear” from the title company regarding the property title, the lender coordinates with the title company on final paperwork. These final details include homeowners insurance, calculation of fees, assumption of point of sale violations, certificate of pest inspection (for VA loans), seller’s mortgage payoffs, proof of repair bills, and anything else pertinent to the transaction. The seller also provides information regarding where they want the sale proceeds to go.
The last piece of the puzzle is the preliminary HUD 1 statement, or a closing statement. It lists all expenses a buyer is being charged. Every fee needs to be accounted for and disclosed. For a buyer, it is typically comprised of lender fees, title company fees (closing costs), broker fee, a credit for earnest money, property taxes and any closing costs paid by the seller. For the sellers, it will list any mortgage payoffs, seller’s closing costs, real estate selling fees, property tax obligations and a ‘due to seller’ amount.
Once the lender approves title company’s paperwork, the loan documents get sent to the title company for signing. The title company provides wire instructions with an account number to send the “due from buyer” amount. This balance due includes down payment, closing costs, etc. It is VERY important to confirm the wire instruction DIRECTLY with the title company. There are many scams with fake closing wire instructions.
The seller and the buyer sign separately and rarely ever meet. The seller typically signs first, followed by the buyer. Sellers are typically finished signing in around 30 minutes. The buyers obtaining a loan should plan for at least an hour to two hours. Cash buyers are finished in under 30 minutes. On a typical day, if paperwork is signed before noon, the title usually will transfer later in the day. If paperwork is signed in the evening, the title is transferred the following business day. And with that, a home now belongs to a new owner.