The Closing Process When Buying a House

The Closing Porcess When Buying a House Explained

The closing process begins as soon as an individual makes an offer on a home that is accepted and receives preliminary financing approval from his or her Mortgage Lenders| mortgage lender]]. Before the title actually transfers from the seller to the buyer during closing a great deal of research is conducted regarding the physical structure of the home and its title.

Initial Procedures

When a real estate transaction begins, several actions must take place before the sale can be completed. The selected title company will handle many of the details of closing, but the Realtor, lender, buyer, and seller all have important roles during the closing process. Before a transaction can be cleared before closing, the following actions and procedures must take place:

• Home Inspection - The purchase agreement usually specifies a home inspection requirement. A licensed inspector will conduct a detailed analysis of the condition of the home and prepares a report detailing his or her findings. The buyer can request that improvements be made prior to closing, based on the inspection results. Even when not required, it is a good idea for the buyer to have a property inspected prior to closing.

• Appraisal - An appraiser will inspect the home, verifying that it is worth as much or more than the purchase price.

• Title Search - The title company will conduct a search of legal records designed to identify whether or not the seller has the legal right to transfer ownership of the property and determine if there are any pre-existing liens or encumbrances on the title.

• Insurance - Mortgage companies require that both title insurance and homeowners insurance be in place prior to closing. This protects the buyer and the lender from prior ownership claims that may arise down the road and from physical property damage.

Immediately Before Closing

HUD Settlement Review

Home buyers have a right to review the Housing and Urban Development (HUD) Settlement Statement up to 24 hours prior to closing. This document clarifies the final closing costs associated with the purchase transaction.

The final HUD Settlement Review document replaces the good faith estimate of expected costs provided at the beginning of the closing process. By reviewing this paperwork ahead of time, buyers can ensure that they won't be surprised by the final dollar amount required at closing.

Final Walk-Through Inspection

Many buyers choose to walk through the home one last time within 24 hours of closing, assuming this option is specified in the purchase contract. This enables the purchaser to double check that any improvements specified in the terms of the agreement have been completed and that the property has in fact been vacated (assuming that possession is set to take place at closing).

If problems are detected during the final walk through, the buyer can request that closing be delayed until specified conditions are met. Alternately, sellers who do not meet the deadline for making repairs may offer to reduce the purchase price of the home instead of delaying closing. If this is the case the lender will have to get involved, as failure to complete improvements might impact the appraised value of the property.

Closing Day

Closing usually takes place at the office of the title company handling the transaction. During the closing procedure, the buyer and seller will sign the legal documents that officially transfer title to the new owners.

A representative of the title company, called the closing agent, will lead the meeting. During the meeting, the closing agent will verify that all documents are properly signed and collect all necessary payments. Further, he or she will take care of getting the legal documents recorded and handle making sure that escrow payments are distributed properly.

Attendees

In addition to the closing agent, several parties with vested interests in the real estate transaction may be present during the closing process of buying a house, including:

• Buyer
• Seller
• Realtor (representing the buyer, the seller, or both)
• Lender
• Attorney

Documentation

• Truth in Lending Act (TILA) Disclosure Statement - The buyer will receive a final disclosure revealing all costs of financing the home, detailing both interest expense expense and discount points.

• HUD Settlement Statement - Both the buyer and the seller must sign this precise disclosure of the final closing costs and financial details of the transaction.

• Mortgage Note - The buyer will sign and receive a copy of the mortgage note, which outlines the terms and conditions of his or her promise to repay the loan, along with the consequences of failure to do so.

• Deed of Trust - This document is provided in security of the mortgage note, and gives the lender legal claim to foreclose on the property should the buyer neglect to honor the terms of the mortgage agreement.

• Certificate of Occupancy - If the home is new construction, the buyer will receive a certificate indicating that the structure has been cleared for occupancy. Buyers cannot legally take up residence in a brand new home without this documentation.

Transfer of Title

Once all papers are signed at the closing table, title is officially transferred from the seller to the buyer. The closing process when buying a house is rather long and detailed, but it is an important part of real estate law. Everyone involved in the transaction benefits from making sure that all legalities associated with the transaction are handled in a professional manner prior to transfer of title.