How the Closing Process Works

A checklist of critical steps and information

When a buyer and seller have agreed to a deal on a home, the last step is the closing. The closing process takes about 40 to 50 days and includes everything from home inspection to signing paperwork.

Understanding contingencies

Contingencies are conditions that must be met before the deal is closed. Common contingencies that come up during the closing process are appraisal, inspection, title, and financing contingencies.

Earnest Money (Deposit Money)

One to three days after the seller accepts an offer, the buyer will deliver their earnest money to a title company which will hold it during the duration of the transaction. Earnest money is 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 and it is not covered by a contingency, they forfeit their earnest money.

Home inspection

The buyer will schedule a home inspection unless they waived a home inspection contingency or had the home inspected prior to making an offer. An inspector will identify any issues and give the buyer the condition of the house so they can negotiate and close the deal.

An inspection usually takes a few hours and the buyer will receive a report outlining problems during the inspection. If the buyer has an inspection contingency, they can back out of the deal.

Home appraisal

Unless a buyer is paying all cash, they will take out a mortgage. Their lender will then order a home appraisal. If the home doesn’t appraise (the bank doesn’t think it’s worth what the buyer is offering), the buyer can decide the next steps. A home appraisal contingency allows the buyer to back out of the deal or to renegotiate a new price.

Title and financing

If the buyer has a title contingency, they can verify that the home’s title is clear of any issues before purchase. The buyer can then secure financing. If the buyer has a financing contingency

and is unable to secure a loan to buy the home, they can back out and reclaim their earnest money.

Title insurance

Title insurance protects against losses if a problem arises with the title after the home is purchased. There are usually two parties who require title insurance, the lender and the homebuyer.

Final walkthrough

The walk through should confirm:

●  That the house is in the same condition as when the offer was accepted

●  All necessary repairs have been done

●  Everything included as part of the sale is still in the home

Closing costs

The seller pays the listing and buyer agents’ commissions. A typical listing fees is between 2.5-3%. The buyer usually covers expenses like settlement fees, lender fees, and title insurance.