Buying a Home - The Closing
The day of closing can be both hectic and exciting, as sellers scurry to move out and buyers get ready to move in. Occasionally a last-minute problem has to be negotiated: a discovery during the walk-through, or maybe a change in the hour of possession because the movers showed up late. Rarely does a new problem arise at the closing table, although it may be at this time that a check or signature is required to finalize an informal adjusting agreement made just minutes earlier. Even with last-minute problems, most people are all smiles by paper-signing time. We’ve seen many closings that are downright love fests—and a (very) few that resemble battlefield trenches, with principals signing in separate rooms as their agents and closers shuttle back and forth with papers. But not to worry, that rarely happens; and never to reasonable clients like you!
So let’s proceed boldly to our closing. Your title company has told you what to bring to the meeting:
- A photo ID
- A list of your addresses for the past ten years
- A certified check made payable to yourself for the amount shown as your closing costs on the Good Faith Estimate
- Your checkbook, in case of last-minute adjustments or charges
You’ll want to coordinate with your agent to get to the closing on time. Sellers can be a little late, since their portion of the closing is short. But, as buyers, you’ll risk writer’s cramp by the time you’re done signing 20-30 documents. Title company closers do a remarkable job of taking you through this mountain of paperwork in a short time (most closings only last an hour). All these papers are standardized forms required by statute in Minnesota, so your job will be to make sure that the blanks have been filled in correctly. We won’t get into a list of the documents required, but here are the bare bones of what happens at the closing meeting:
- The buyer agrees to pay the lender the amount specified on the new mortgage (the mortgage note), and pledges the house as collateral (the mortgage).
- The lender provides the mortgage amount specified (“funds the closing”) to pay the seller.
- The seller signs papers that pay off all existing loans and encumbrances, thus clearing title. Seller signs a deed that gives the buyer title to the property.
These things all happen virtually simultaneously (of course, they would have to) along with various adjustments including prorating of property taxes, state mortgage and deed taxes, title company and lender charges, real estate broker commissions and fees—all spelled out on the HUD-1, a federal form that is a comprehensive accounting of all monies collected and disbursed at closing. You should have had a chance to look at the HUD the day before closing, but delay in preparation by the title company (often due to lender delays) sometimes prevents the early look we’d all like to have. So buyers, sellers, their agents and the loan officer (if present at the closing) should be prepared to check carefully at the closing table for anything that seems out of place, or missing. Such occurrences are very rare, however, and usually easily fixed.
At the closing you will be offered the opportunity to buy an owner’s title insurance policy. Title insurance protects the policyholder from any claim on the property (pre-dating the closing) that might arise in the future. It pays for all court costs and fees involved in settling a dispute; and if the claim is determined to be valid, it pays the policyholder’s actual loss up to face value (the amount of the mortgage). This is identical to the lender’s policy that you were required to buy on behalf of the lender as part of your closing costs—but the lender’s policy only protects the lender, this protects you. The closing company will offer you an owner’s policy for approximately 2/3 of the cost you paid for the lender’s policy: typically this would run about $400 for a $200,000 policy. While there is much to be said for the peace of mind this policy brings, it’s not an automatic decision for all buyers: some reason that if the title company has done a thorough search, then the odds are slim that anything will come up later; and if the house they’re buying has a stable history with few past owners, divorces, multiple loans or contracted labor, it might be practical to try to save the $400. Most attorneys advise against this, however, and most buyers do opt for the peace of mind this one-time cost can bring. But if you’re stumped at the closing table you don’t have to make up your mind right away—the title company offers the same policy with the same price break for 30 days following closing.
The atmosphere at a typical closing is often surprisingly relaxed, given the enormity and complexity of a real estate transaction. Credit should go to the title company closers, who, seemingly without exception, handle their complicated jobs with pleasant efficiency. Buyers and sellers who haven’t already met get a chance to talk and learn about one another across the table as the property is smoothly transferred.
When all the documents are signed the closers leave the room to make copies and cut checks. While they are gone your River Realty agent will distribute a useful form that allows both parties to provide contact information for each other, and to shed light on mysteries such as, “when is garbage day?” Sellers may need your phone and email to let you know about a just-remembered detail; and of course it’s important for you to have a forwarding address for the sellers, in case anything important-looking shows up in your mailbox. At this time the sellers will hand over the keys and any security codes; and when the closers return with the proceeds check for the seller and document copies for everyone, the closing is over.
And just like that, you are no longer buyers. You’re homeowners. Congratulations!