Closing – or settlement — is a term used for the point in time at which the title to property is transferred from a seller to a buyer and, generally, a mortgage (or “deed of trust”) is given by the buyer/borrower to a lender. Buying a house is an exciting time and the more you know about the process, the more relaxed you’ll be going through it. Keep reading, and we’ll walk you through what the closing process really means.

Some information about the costs associated with closing on your home should be provided to you before you put a contract on a house. If you are obtaining a loan to purchase the property, your lender has three days from the time of the loan application to provide you with a Loan Estimate of your loan costs so there are no surprises about costs.

Once the Purchase and Sale Agreement is signed, the countdown to closing begins. Timing is essential to make sure all the ingredients for a successful closing are in place before your arrival. You can shop around to select a settlement agent to prepare the documents for your closing, or you can rely on a recommendation from your real estate agent or lender. In some parts of the country, the settlement agent is an attorney, title company, or escrow company. Once a settlement agent has been selected, he or she will handle the closing process from there. If you have given the seller an earnest money deposit, the escrow agent, settlement agent, or real estate broker, will see that it is promptly deposited into an escrow account where the funds are held until the time of closing.

Next, the settlement agent will request preliminary title work. A title professional will search and examine the public records for information related to your home’s title. This provides warnings of title flaws that must be dealt with before the property can change hands. For instance, the previous owner may have failed to pay local or state taxes or there may be an outstanding mortgage or judgment on the property. Title professionals work hard to see that such obligations are dealt with and resolve any issues they find well before you go to closing, if possible.  A Municipal Lien Certificate will be requested from the Town’s Tax Collector’s Office and, if applicable, a mortgage inspection survey (also known as a plot plan) will also be ordered. 

Under the Consumer Financial Protection Bureau (CFPB) and TRID regulations, buyer’s lenders provide a Closing Disclosure (commonly referred to as a CD) for the closing.  The CD lists the specifics of your mortgage loan, as well as your closing costs and prorations.  The lender is required to provide you with the CD least three days prior to closing.  The settlement agent will work closely with the real estate agents and the seller’s attorney, if applicable, to obtain all the necessary information and documents, and all closing fees and prorations to provide to the buyer’s lender to assist the lender in preparing the final Buyer CD and for the settlement agent to prepare the final Seller Closing Disclosure and other documents for the closing. 

Your lender will require you purchase a “lender’s title insurance policy”, which covers the lender should any unforeseen issues come up with the title.  However, that policy only ensures that the lender has a valid, unenforceable lien on the property – it does not protect you. There can be any number of problems that remain undisclosed even after the most careful search of public records. For example, forgery, unknown title holders, fraud, lack of legal capacity to sign document or erroneous legal descriptions.  An Enhanced Owner’s Title Insurance Policy will help protect your property rights and interest against losses and defects for as long as you own your home.  See link for more information.

On closing day, the property will be transferred from the seller to the buyer. In most parts of the country, you will sign a number of documents that will be explained by your settlement agent. Check with your settlement agent for more details on how the closing is conducted in your area. Once all of the signing is done and the deed is recorded, the house is yours!

You should be generally aware that the behind-the-scenes process continues after the closing. The settlement agent still must forward payment to any prior lender, pay all the other parties who performed services in connection with your closing, pay out any net funds to the seller, and order a final search of the title to your new home before finally recording all the documents needed legally to complete your purchase. But you don’t have to be involved in any of this; your settlement agent takes care of these post-closing details.