Everything is now in order. The appraisal and inspection have been done, the mortgage secured, and the buyer and seller have finally reached an agreement on a purchase price. The next step is what is called the closing process.
And since most house purchases involve mortgages, it is a process. There is a process that takes place to lead to a “closing date.”
How is the Closing Date Determined?
The “closing date” on a house purchase is the date the buyer’s lender determines it will have all of its paperwork and the loan money necessary to complete the transaction. This can take generally 30 to 45 days from the date that the purchase agreement is signed. If you, the buyer/borrower, were pre-approved for a mortgage, you had already completed several steps, so a closing date may be sooner (less than 30 days). Also, a closing date can be moved up for cash-only buyers since there is no loan paperwork involved in these transactions, closing could be in just a few days to two weeks.
What is the Closing Process?
The process itself involves a lot of moving parts – and a lot of paperwork. Most of the paperwork is legal documentation of certain steps, processes and agreements between the parties involved. The closing itself can be handled by the title company, an escrow officer or a real-estate attorney, for example – a professional who has been outside of the transaction process until the close.
The closing process in total tends to vary from state to state – or even from one part of a state to another, but these are general steps taken in a closing process:
- Purchase agreement and any addendums fully executed.
- Deposit of earnest money (“good faith” money aside from a down payment).
- Home inspection performed or executed document waiving an inspection.
- Seller obligations performed – pest inspection, roof certification, repairs, home warranty, initial title policy, as examples (not a complete list).
- Buyer inspections completed, with contingencies if deemed necessary.
- Buyer’s final walk-through inspection or executed document waiving such.
- Appraisal of property done by a lender-approved appraiser.
- Lender’s loan approval and buyer’s loan conditions satisfied (evidence of home insurance policy, for example).
- Escrow instructions signed by both buyer and seller.
- Seller signs and notarizes deed-conveying title.
- Buyer signs and notarizes deed of trust and executed promissory note.
- Buyer signs all loan documents.
- Lender deposits buyer’s funds.
- Balance of buyer’s closing costs and down payment are deposited.
What Can Hold Up a Closing?
While the lender tries to make a reasonable closing date based on workload and numeber of the above steps that need to be executed, sometimes closing can be delayed by other factors that keep the closing process from moving smoothly along. Some of these delay factors could be:
- Low appraisal, or the underwriter of the loan requests a new appraisal that does not match the original.
- More debt found on the buyer’s credit report (it is advised that you don’t add any debt two to three months before buying a house – more debt may affect your creditworthiness for such a large loan).
- Mistakes in the buyer’s credit report that were not addressed earlier.
- Any new liens or judgments filed upon updating of the title.
- “Cloud” or ambiguity on the title.
- Buyer or seller gets married, divorced, widowed, etc.
- No updated bank or financial statements as requested.
- No information about home insurance on the property.
- The loan commitment from the lender expired (these are time-sensitive).
Now that you know some common reasons for delay, you can ensure that these steps are taken (or avoided) while you’re in the home-buying process, so there are no delays on getting to the closing date. However, if the transaction is not contingent on loan approval and the loan is rejected, your earnest money put forth is at risk and may be lost – so make sure a contingency clause is included in the purchase contract.