Purchasing a home is a huge milestone. You’ve saved, you’ve done your research and you’ve probably walked through quite a few houses before you found the one that feels like home.
But now the time has come to close on your new home, and you’re probably wondering what steps are involved to close on a house. How long does it take to close on a house? Where do you close on a house? Is homeowners insurance included in closing costs?
We're here to answer some of those questions. From gathering the necessary mortgage documents to determining the house closing timeline, below are some common questions, and answers, about what to expect when it’s time to close on your new home.
9 Questions About Closing on a House
1. What Is Closing on a House?
Closing is when all involved parties sign the papers that officially transfer ownership of the property over to you. The day before your closing date, it’s helpful to gather any documents related to the purchase of your home, such as your loan estimate, contract, proof of homeowners insurance, home appraisal, home inspection reports, closing disclosure and your check or payment covering closing costs. When you close on a house, you will be expected to accomplish two things: Sign legal documents and pay closing costs and escrow items.
When you close on a house, you will receive the following documents:
- Closing disclosure: Provides details of your mortgage loan, estimated monthly payments and closing costs.
- Mortgage note: Indicates the amount and terms of your loan and what legal action the lender can take if you fail to make payments.
- Mortgage or deed of trust: Secures the note and gives your lender a claim against the home if you do not honor the terms of the mortgage note.
- Certificate of occupancy: Applies only if you are the first occupant of a newly built home, and is required for you to move in.
2. How Long Does It Take to Close on a House?
Currently, the average time to close on a mortgage loan is 50 days. However, the time it takes to close on a house depends on several factors, such as whether you are paying in cash or financing. If you’re financing and take out a loan, some loans require additional underwriting and could take up to 60 days for processing.
3. What Are Closing Costs, and How Much Are They?
Closing costs are the fees charged by the lender at the closing of your house. The amount of the closing costs depends on where you live, what type of property you buy and the type of loan you use.
Buyers typically pay about 6 percent in closing costs. These costs include fees for things like the title insurance and appraisal. Your mortgage loan fees like your recording, attorney and loan origination fees will also be included in your closing costs.
4. Can Closing Costs Be Included in a Mortgage?
It’s possible to roll closing costs into your mortgage, but it comes at a price. If you don’t pay closing costs up front, you may be charged a higher interest rate by your mortgage lender. The closing fees could also be included with your mortgage, which means you’ll pay interest on your closing costs, too.
5. Do Sellers Ever Pay Home Closing Costs?
The good news is that closing costs are negotiable. Sometimes, the seller will agree to pay the buyer’s closing fees, but this can be tricky if you purchase a home in a seller’s market. If a seller receives two offers for the same amount, but one buyer is asking them to pay closing costs, the seller will most likely choose the offer that doesn’t require them to pay additional costs. However, in a buyer’s market, you’re more likely to have extra negotiating power.
6. What Is Escrow?
Escrow is when an impartial third party holds on to something of value during a transaction. For example, when you make an offer on a home, you will have to put down earnest money. That money will be placed in escrow, where it will be held to ensure both parties (the seller and the buyer) receive what they are due at the appropriate time.
You might also encounter the term “escrow” in regard to funds that are held by your lender to make payments for your homeowners insurance and property taxes.
Escrow tends to make things easier because a portion of your insurance and taxes are collected along with your monthly payment and are paid when those bills are due. It helps you because you don’t have to remember to set aside money each month for taxes and insurance. And it helps your mortgage lender because they know in advance that those bills will be paid in full.
7. Is Homeowners Insurance Included in Closing Costs?
You will probably need to buy homeowners insurance before you close on your new home, especially if you’re financing your home. Unless you agree to an escrow, you will typically be asked to provide proof that you’ve prepaid one year’s worth of coverage before closing. How much coverage do you need? Amounts will vary by lender, but you should have enough to rebuild your home should the worst happen.
8. What If My Closing Gets Delayed?
If there’s an issue with the appraisal, credit, income or assets, it can delay your approval and push back the house closing process. Missing or late paperwork can also cause delays, as can buying a home during peak season when appraisers are booked.
If you fail to close on time, the interest rate lock you previously obtained could expire, and if rates have increased in the interim, you could end up with a higher rate, causing you to pay more for your loan over the course of time.
If a delayed closing is the buyer’s fault, the seller could potentially charge you a daily fee to help cover their costs of continued home ownership. In some cases, the seller could even back out or take legal action against you, as it is technically a breach of contract.
9. What Happens on Closing Day?
With a cash deal, signing the final paperwork can take just 30 minutes. But mortgage agreements come with a hefty stack of paperwork, so buyers should plan for about two hours of reviewing and signing documents. Keep in mind that even in this era of video conferencing, closing on a home is still something that needs to be done in person on the buyer’s end. Sellers can skip closing by pre-signing the documents or providing their attorney with power of attorney.