How the Closing Process Really Works
When it comes to buying a home, many buyers see the process as mysterious and complicated. Being aware of what is going on when closing a deal can help buyers better understand the process and get a better deal.
One of the most complex parts is closing. What really happens before you get the keys in your hand - and how much should you expect to pay? In this month's article, we are going to break down exactly what it takes for a buyer to close and the cost of closing.
What Happens During Closing?
Once the deal is accepted, you have to start making decisions.
The first decision will be when to close? Most buyers pick a date that best fits their schedules. Once the buyer has picked a date, they need to contact the title company and go through the final steps in preparation for closing. These can usually take anywhere from three weeks up to two months.
The title company will call all parties involved in the transaction; this includes the buyer, seller, lender, and any other necessary party that is involved in the closing of the deal. The title company representative will explain each document that will be signed.
Some deals may have a few surprises at closing - for example, if you are on the hook for an unexpected tax or fee. There are also fees that cover the title search, certificate of title, lien search, and other expenses in connection with closing.
Closing can take anywhere from one hour to a whole day, depending on the number of documents to be signed at closing.
What Costs Go Into Closing?
There are a lot of costs that go into the closing process. Some of these costs, such as real estate commissions and fees, can vary greatly depending on price range and location.
The lender requires this to protect them from losses if there was any misinformation regarding title to the property. Lenders require borrowers to carry a minimum of title insurance based on the loan amount.
Potential Cost: This can vary by a lot of factors, but you can estimate a cost north or south of $2,000
This is the fee to process all loan documents. These fees are based on how many pages of paperwork there are. It includes the preparation of all legal documents in connection with the transaction.
Potential Cost: Again, this varies depending on the different parties involved with your particular loan. You may have additional fees for elected or necessary services that fit your specific case, but an average across the country for standard home loans in 2020 fell around $200 - 400.
Loan Commitment Fee
Once your lender gives you a loan commitment, that fee is also due at closing. This includes a survey fee for any property that has recently been purchased and the lender's appraisal of the home.
Potential Cost is dependant on factors such as size of property, the appraiser partnering with the firm, etc. we've seen a range from the low hundreds into the thousands.
This covers recording the deed and mortgage with the appropriate county housing department. It helps prove ownership in case the title to the property is ever questioned.
Potential Cost: This one doesn't waiver much, a safe estimate bet is right around $50 - 200
This covers the cost of having an appraisal done by a certified appraiser. Although it sounds redundant, you need your home's value independently verified. The lender requires an appraisal as part of their approval process for any loan amount over a certain amount.
Potential Cost: under a thousand dollars
This is an examination by a title company or attorney of public records to verify that the seller has a clear title to the property and that there are no liens or judgments against it. The title company will not be able to issue you insurance if they find something suspicious.
Potential Cost: Varies but isn't a hefty fee
Although most buyers do not need an attorney, some deals require one and in those instances, they can expect to pay between two to 10 hours . An attorney is needed when lenders cannot agree to all the terms of a loan or the purchase price.
Potential Cost: Two to 10 hours of contract work
Some sellers offer a home warranty to their buyers, but this should not be confused with homeowner's insurance. Some sellers may only offer a one-year warranty, but if you have special requirements it can be much longer. You can expect to pay between $300 and $500 for this with the average being about $400.
Potential Cost: varies depending on the length of coverage plan you choose at closing
It's easy to assume that homeowners insurance is automatically included with your mortgage, but it's not. Homeowners insurance is a separate policy you will have to get on your own.
Potential Cost: varies depending on factors such as the value of the home and location.
This is insurance that protects you, the buyer, against losses due to errors or omissions in the title search report and guarantees that the title is free of any liens or encumbrances. Title companies will not be able to issue you a policy if they find something suspicious, so it's important to avoid this from happening.
Potential Cost: varies depending on the coverage needed for your specific situation, but it can cost up to $1,000.
Although a home appraisal is part of the process with any loan over a certain amount, you may still be required to pay one in order to get insurance. It can cost $400 to $600 and may need to be paid for twice, once at the beginning of the process and again near closing if your lender requires it.
Potential Cost: varies depending on location and home's value.
This is an assessment of the property lines and dimensions so that you know exactly what you are purchasing and that it matches up with your deed. You will need to pay the fee even if you think there is no chance of a property discrepancy.
Potential Cost: typically under $500
How Can I Save On Closing Fees?
Although many of these fees are required to complete the closing process, there are ways you can save on each of them.
The first thing buyers should do is ask the agent about any deals currently available. Sometimes sellers will offer reduced rates on certain services if they haven't had too many takers.
It's also important to know what kind of deals are available with the different lenders. It may be possible to get a lower rate or even free services by choosing one lender over another.
Contact as many companies as you can about the fees and ask for any discounts they might have available. In some cases, you may be able to negotiate down certain costs that the seller will end up covering.
When you have a pre-approval letter from your lender, you can use that as leverage with the seller to get a better deal. The sellers may worry about losing a sale so creating an incentive for them could lower the cost of some fees.
How Simple Home Loans Helps You Save On Your Closing Costs
At Simple Home Loans, we know that homeowners have a lot on their plates when it comes to buying a home. That is why we have a team of highly trained professionals to help you through the process.
We will provide you with the resources you need to know exactly what goes into the closing process. We will also show you how to get the best deals on fees and offer solutions if there are any problems that may delay your closing.
When it comes to finding your dream home, we will even help you find the best possible mortgage and negotiate the lowest rates available. We'll also offer money-saving tips on how to avoid hidden fees that may cost you more than you expect!