How to Prepare for a Closing Process
Closing occurs when you have finished negotiating a contract.
Be in contact with your real estate attorney as they will know what steps to take.
Contingencies are conditions that are included with an offer that must be fulfilled before the deal is closed. For example, a buyer can submit an offer with a home inspection contingency—this allows the buyer to back out of the deal if anything is found during the inspection that will require repair.
Common contingencies that come up during the closing process are appraisal, inspection, title, and financing contingencies.
One to three days after the seller accepts an offer on a home, the buyer will deliver their earnest money to a title or escrow company, which will hold it during the transaction. Earnest money, also referred to as the Good Faith Deposit, is typically 1%–3% of the sale price of the home and is applied toward the buyer’s closing costs. If the buyer backs out of the deal for anything not covered by a contingency, they will likely forfeit their earnest money.
Next, the buyer will schedule a home inspection unless they waived the home inspection contingency or had the home inspected prior to making an offer. An inspector will give the buyer an accurate picture of the home's condition and identify any major issues with the home, so they can confidently negotiate and close the deal.
An inspection generally takes a few hours, and at the end the buyer will receive a report outlining any issues discovered during the inspection. If they have an inspection contingency and discover an issue with the home, the buyer can back out of the deal at this point.
Unless a homebuyer is paying all cash, they will get a mortgage. Then, their mortgage lender will order a home appraisal. If the home does not appraise, meaning the bank doesn’t think it’s worth what the buyer is offering, the buyer will have to decide what to do. A home appraisal contingency allows the buyer to back out of the deal at this point or renegotiate a new price that the lender and seller are happy with.
Title and financing
If the buyer has a title contingency, they can now verify that the home's title is clear of any liens or other issues before completing the purchase of the home. Then the buyer will secure financing. If the buyer has a financing contingency and is not able to secure a loan to buy the home, they can back out of the purchase and reclaim their earnest money.
What is title insurance?
Title insurance protects against losses in the event that a problem arises with the title after the home is purchased. For most home purchases, there are two parties who require title insurance—the lender and the homebuyer.
One of the very last steps is the final walk-through, which should confirm three things:
That the house is in the same condition as when the offer was accepted
Repairs have been completed
That everything that was included as part of the sale is still in the home
What are closing costs?
The final step in the closing process is to pay closing costs.
The seller pays the listing and buyer agents’ commissions unless they work with an investor which does not charge realtor fees. A typical listing fee is 3%
Typically, the buyer covers expenses like settlement fees, lender fees, and title insurance.