What to Know About Closing Day: Paperwork, Fees, and More
"Just like marriage, homebuying is one part love, one part legal transaction, and starts with a proposal,” according to Kim Lee, a Vancouver real estate agent.
And if the homebuying process is like a marriage, then closing day is like your wedding day.
Homebuyers, are you ready to say “I do” and get the keys to your new home? Sellers, are you ready to sign the papers that’ll signify the next chapter of your life?
In this post, we’ll explore what happens on your big day and walk you through what needs to be done before you can start the closing process — and everything that happens after.
What Is Closing Day?
Closing day occurs when the homebuyer signs a small rainforest’s worth of paperwork to finalize their real estate transaction. There are usually (but not always) several witnesses present, including the seller, the mortgage lender, the closing agent, and a title company representative. A real estate attorney might also have a seat at the closing table to review the signed closing documents.
The documents the buyer will sign usually include:
- Purchase agreement: This document serves as the framework for the sale’s details, including the home purchase price, contingencies, and the closing date. A purchase agreement also clearly defines the buyer and seller's obligations and responsibilities.
- Mortgage note: This note serves as your promise to pay your mortgage loan. Like the purchase agreement, it outlines the amount and terms of your loan. It also states what your lender can do if you don’t make your payments.
- Deed of trust: This document grants your lender the right to make a claim against your home if you fail to fulfill the terms of the mortgage note.
- Loan estimate: The loan estimate includes all the relevant information about your loan, including the loan amount, terms, interest rate, and closing costs.
- Closing disclosure: The closing disclosure is a document you should receive at least three days before your closing date. Like the loan estimate, it includes all of the relevant information about your loan. Read it carefully and compare it to what’s detailed on the loan estimate.
- Escrow statement: This document outlines the payments the lender will make from your escrow account for your first year of homeownership. These payments also cover your homeowners insurance and property taxes.
Depending on your situation, there may be other important documents you’ll need to sign on closing day, such as additional loan documents or a certificate of occupancy. Either way, prepare for a hand cramp.
Even though there’s a lot to sign, you should always read through these documents to ensure they’re accurate. Also, pay special attention to the spelling of your name.
Closing Costs and Escrow Fees
In addition to reading through and signing many documents, closing day is when you pay your closing costs and other fees.
The buyer is largely responsible for paying closing costs, but sometimes seller concessions are up for negotiation. Closing costs include:
- Title insurance
- Home appraisal fees
- Home inspection fees (if additional inspections are required)
- Loan origination fees
- Attorney’s fees
- Recording fees
- Mortgage points
Closing costs are usually between 2% and 5% of your home’s purchase price. If you buy an $800,000 home and your closing costs are 3%, that’s $24,000 — so save wisely!
How much the seller can contribute is directly correlated to your down payment percentage:
- 3% if your down payment is 10% or less
- 6% if your down payment is between 10% and 25%
- 9% if your down payment is greater than 25%
As your escrow statement outlines, you’ll also be responsible for paying your homeowners insurance and property taxes. You may also be required to pay homeowner’s association (HOA) fees and utility bills in advance.
Your closing costs and escrow fees are usually paid via a cashier’s check, certified check, or wire transfer. You’ll know ahead of time which form of payment is preferred.
What Do You Need to Bring On Closing Day?
Other than yourself and anyone else who needs to sign documents, you’ll need to bring the following items on closing day:
- Government-issued photo ID, like a driver’s license or passport (sometimes, you’ll need two forms of ID, so ask ahead of time)
- Proof of homeowners insurance
- A cashier’s check or certified check to cover your down payment and closing costs
- A copy of your marriage certificate if you and your spouse are buying the home together but have different last names
The Journey to Your Big Day
Now that you know everything that happens when you sit at the closing table, here’s how you get there in the first place, in (mostly) no particular order:
Hire a Home Inspector
Home inspectors assess the house's condition and identify any potential issues you may not be able to see with the naked eye. Home inspectors look at:
- The house’s structural components, including the walls, floors, ceilings, doors, basement, attic, roof, and crawl spaces
- Electrical and plumbing systems
- The HVAC system
- Water heater
- Potential issues involving mold, pests, termites, radon, lead, or asbestos
Hire a Real Estate Attorney
Buying a home involves many moving parts and a lot of paperwork. Having an attorney in your corner can ensure the process goes smoothly. This isn’t required, but we strongly recommend it.
Conduct a Title Search
Title search companies look for any issues involving the house’s title, such as an ownership dispute or existing liens on the home. If the title is “unclean,” you’ll want to know before you sign the closing paperwork. You should also buy title insurance, which covers the cost of title claims when you become the homeowner.
Open Your Escrow Account
Your escrow account holds your earnest money deposit and any other funds associated with your home purchase until you sign your closing documents. Then, your mortgage provider distributes the funds based on the agreements you’ve made. The title company you hire also usually manages your escrow account.
Negotiate Closing Costs
When it comes to real estate, almost everything is negotiable. If you want the seller to pay some of the closing costs and negotiate with your lender to waive some of the fees, this is the time to do it!
Set Your Closing Date
Confirm your date for the big day. This is when the seller agrees to be fully moved out so you can move in. Remember that this isn’t usually the same day you close the deal. It’s typically a month or even longer after all of the closing documents are signed.
Do Your Final Walk-Through
Before you move in, take one last lap about the home you purchased just in case any damage occurred between when the home inspector was there and your move-in date. At this point, the seller should have made all the agreed-upon repairs and removed everything not included in your purchase and sale agreement.
What Happens After Closing Day?
You’ve signed the closing documents and payments have been made. Congratulations! The legal ownership of the residence has changed hands, and the new homeowner can take immediate possession of the house on the closing date.
In some cases, there are also post-closing arrangements that must still be made. These agreements often include property tax reimbursements and any repairs that couldn't be finished before closing day.
Closing With Aalto
Anyone from first-time homebuyers to seasoned homebuyers can find closing day daunting. It involves lots of paperwork and can lead to you asking many last-minute questions surrounding real estate transactions.
Let us demystify the complicated parts. At Aalto, our goal is to make every aspect of the homebuying process smoother, including closing day. We’re here to handle all of the legal paperwork and negotiations on your behalf, making your big day less stressful and more monumental.
Are you ready to take the leap and buy or sell your home? Get started with Aalto today!
Aalto is a real estate broker licensed by the State of California, License #02062727 and abides by Equal Housing Opportunity laws. This article has been prepared solely for information purposes only. The information herein is based on information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy of the information. Aalto disclaims any and all liability relating to this article.