You may imagine buying a house like a property hunting TV show: view a home with your real estate agent, tell them you want to make an offer, and then magically get the keys and start moving in. The problem with this picture is that it skips the entire house closing process and fast forwards to closing day.
Between making an offer and getting the keys to your new home, there are many steps to take, including purchasing homeowners insurance, securing mortgage funding, and hiring a lawyer to complete the necessary paperwork.
By knowing the home closing process and the factors that could delay closing, you’ll be better prepared to buy your first home without surprises.
Key Takeaways
- Closing on a house includes multiple steps, including hiring a real estate lawyer, finalizing your mortgage funding, and acquiring homeowners insurance
- The closing process typically takes 30 to 60 days
- Contingency failures, low appraisals and changes to your financial situation could delay your closing date
What Is the Closing Process?
The closing process on a house is the final step in a real estate transaction. The process ends on the closing day when the property is transferred from the seller to the buyer.
The closing process starts well ahead of the closing day. After you make an accepted offer on a home, you will need to contact a real estate lawyer to start the necessary paperwork, including reviewing the Agreement of Purchase, performing a title search, and calculating the land transfer tax.
In addition, you will need to arrange for a home inspection, finalize your mortgage funding, and have your closing cost and down payment ready for closing day.
How Long Does It Take To Close On a House?
The typical time between an accepted offer and the closing date is 30 to 60 days. As you can imagine, it takes time to complete the legal and financial due diligence required to buy a home. The closing date and contingencies for the sale are set in the purchase agreement.
Steps to Prepare for Closing on a House
Homebuyers must take many steps before closing, in addition to the tasks their real estate agent and lawyer complete. In general, here are the steps to take to prepare for closing on a house.
Home Inspection
Before you finalize the closing on the home purchase, it’s a smart idea to have a thorough home inspection. During an inspection, the home inspector will assess the property’s condition and its systems, including the electrical, windows, heating and plumbing systems, the roof, and the foundation.
You have a few options if the home inspection reveals any issues. If the inspector finds significant problems, you can negotiate repairs or a price reduction. Moreover, if the damages and repairs seem extensive, you can walk away from the deal if the closing is conditional on the home inspection. Lastly, if you’re keen on purchasing this home, you can proceed with the purchase and manage the repairs yourself.
You usually have the home inspection completed soon after your offer is accepted.
Hire a Real Estate Lawyer
Another real estate professional you’ll work with is a real estate lawyer. A lawyer will help with several steps during the home closing process, including the title search and registration, reviewing the purchase and sale agreement, preparing statements, and facilitating payments.
Finding a real estate lawyer after you have a signed purchase offer is essential so they have time to complete the necessary paperwork.
Homeowners Insurance
An often overlooked step during the home closing process is obtaining homeowner insurance. Mortgage lenders will require home insurance before you can close on the property. As such, you’ll want to allocate time to shop around in advance to avoid delaying your closing date.
Once you secure your home insurance, you will provide your real estate lawyer with a copy of the “binder letter” from the insurance company. The binder letter confirms that your insurance policy will become active on your closing day for the home in question. The binder letter usually shows the dollar value of your coverage and the mortgage company as the first payee on the policy.
Submit All Documents to Lender
Since a home closing is often conditional on financing, completing your mortgage application to close on a home is essential. If you’ve gotten pre-approved for a mortgage, your lender or mortgage broker may already have the necessary documents.
The documents your lender requires may vary. However, you should have the following documents ready to submit:
- Proof of employment and income: May include two recent pay stubs, a letter of employment, and two years of T4s
- Proof of down payment: Including 90 days of bank statements for the accounts where the down payment is held. If the down payment is a gift, proof certifying so
- Financial details: Including your debts and financial obligations, like child or spousal support
- Property information: The real estate listing, sale agreement, complete address, and housing cost estimates (like property tax)
Once your approval conditions are satisfied, instructions are sent to your real estate lawyer.
Acquire Cash for Closing Costs
Closing costs are the legal and administrative fees associated with buying a home. Exactly how much money you will need will vary depending on where you live and the home you are buying. Budgeting 2% to 4% of the home’s purchase price for closing costs is smart.
Your lawyer will provide several documents outlining your closing costs. One is the closing disclosure, which details all of the expenses related to the purchase of the home, including legal fees, land transfer tax, administrative fees, prepaid property tax and furnace oil.
The settlement statement, or statement of adjustments, ensures both the buyer and seller are clear on their financial obligations, such as property tax adjustments, utilities, and other prepaid expenses.
If your closing or down payment funds are in a Registered Retirement Savings Plan (RRSP) or First Home Savings Account (FHSA), it’s important to start the process to retrieve those funds before closing day.
Confirm Closing Date
You should confirm your closing date once you have your financing in place, the home inspection is complete, and your lawyer has confirmed that there are no issues preventing closing, like past liens or back taxes.
Now is also a good time to review your contract and ensure you have met any contingencies, such as the home appraisal or the sale of your previous home. In addition, familiarize yourself with the items that should be included in the sale, such as the appliances, window treatments, or rugs, to ensure they are in the home during the final walk-through.
Final Walk-Through
Either the day before or on closing day, you will have a final walk-through of the property with your real estate agent. This walk-through lets you confirm that the home is in the same condition (or better) as the last time you saw the property.
During the final walk-through, you should:
- Inspect any repairs that were required after the home inspection
- Make sure the sellers have completely moved out
- Confirm the appliances are in place and working properly
- Check that any fixtures included in the sale are in the home
- Ensure the property outside is free of debris
If fixtures are missing, repairs have not been completed, or the seller has left the home in worse condition, you can delay closing or withhold funds. Your real estate lawyer will communicate with the seller’s lawyer to keep the sale on track and negotiate a resolution.
Sign Closing Documents
After the final walk-through, you can finish signing the necessary documents with your real estate lawyer. This includes the agreement to transfer the property from the seller to you and the contract between you and your mortgage lender outlining the terms and conditions of the mortgage.
Signing the closing documents is the final step before the lawyer arranges for the delivery of funds to the seller’s lawyer, registers the transfer and mortgage, and finally releases the keys to you for your new home!
What to Bring to a House Closing
Your lender, real estate agent, and lawyer should provide guidance on the necessary items to bring to your house closing. In general, you should bring:
- Government-issued identification, like a driver’s license or passport
- A bank draft or proof of wire transfer for the amount of your closing balance
- Proof of home insurance
What Happens at a Closing?
You must complete several steps on the days immediately before closing or on the closing date. These include:
- Payment of closing costs – You will pay your closing costs to your lawyer via a bank draft or wire transfer.
- Transfer of funds from buyer to seller – Your lawyer will arrange to transfer the funds from the buyer to the seller.
- Document recording – Then, your lawyer will register the transfer and mortgage
- Transfer of keys and possession – Finally, your lawyer will provide you with the keys to your new home!
Closing is an exciting day in the homebuying process, but a lot needs to happen. You want to ensure that you have the right professionals on your side to make the process as smooth and stress-free as possible.
House Closing FAQs
What causes closing delays?
There are several situations that could delay closing. For instance:
- Not having sufficient funds for closing – The transaction cannot go forward if you cannot provide the funds required for closing.
- An appraisal that comes in too low – Your mortgage lender may require an appraisal to ensure the property is worth the purchase price. If you’re purchasing a home in an area where home prices have soared, there is a chance this could result in an appraisal gap. In this case, your lender may lower the amount they lend you.
- Mortgage financing not approved – Even if you got pre-approved for a mortgage, changing jobs, taking on new debt, or lowering your credit score could derail your mortgage qualification.
- Home inspection reveals significant issues – If serious issues were uncovered during the home inspection and repairs are needed, the closing may be delayed until those fixes are completed.
- Contingency failures – If the purchase agreement included contingencies like selling your current home, and those contingencies are not met, the deal will fall through.
How many days after closing is the first mortgage payment due?
Your first mortgage payment is typically due 30 days after you take possession of your new home. However, if you close on a home mid-month, some lenders may expect the first payment or the interest accrued at the beginning of the following month. Your mortgage disclosure statement outlines your mortgage payments, set upon finalizing your mortgage.
Do lenders verify employment on the day of closing?
Mortgage lenders typically verify employment close to the closing date. Changing jobs close to your closing day could create delays in closing.
Can you move in on the closing day?
While you will receive the keys to your new home on closing day, it’s smart to plan to move in a day or two after closing. You may not take possession of the home until later in the day.
