Considering a home purchase can be exciting and scary at the same time. This is especially true if you do not know how everything will come together to complete your purchase. Once you understand something though, the fear tends to subside.
So, you have found your dream home. With the help of your Realtor, you will make an offer on the house. Once your offer has been accepted, it is time to prepare for closing. But, how does the closing process work?
The terms closing and settlement can be used interchangeably. These terms define the point in time when the property’s title is transferred to the buyer and a mortgage, or ‘deed of trust,’ is given to the lender.
If you will be purchasing the property by obtaining a loan, your lender needs to give you a ‘Good Faith Estimate.’ The lender is given three days, following the completion of your loan application, to provide you with this information. This outlines the cost of your loan. Ensuring there are no surprises about how much your loan will cost once interest is added in.
You should also be given a copy of a “Buying Your Home” booklet within those three days. This book outlines the entire closing process. If you are not given the estimate or the book, you need to contact your lender.
The Closing Agent
Either you can shop around to find a closing agent to prepare your closing documents or you can request a recommendation from your agent or lender.
Once you have decided on a settlement agent, he will prepare everything for your closing process. Earnest money is money you give the seller to demonstrate your commitment to purchasing their home. If earnest money has been given to the seller, your agent will make sure that money is deposited and held until it is time for your closing.
Preliminary Title Work
Your settlement agent will now request for preliminary title work. Upon his request, a title professional searches and examines public records looking for any information that is related to the home you are purchasing. This will provide any warnings about title flaws that need to be reconciled prior to your closing day. For example, he will be looking to see if the seller did not pay his property taxes or there is a lien on the property.
After the title clears, a HUD-1 Settlement Statement can be prepared by your agent. This will outline all of the closing costs as related to the buyer and to the seller.
On the day of closing, the property will be transferred to you from the seller. Chances are you will have to sign numerous documents. These documents will be explained to you by your settlement agent. You will also receive copies of all the papers you sign and/or initial.
Once all the paper signing has been completed, it is time to move in!