Preparing for Closing!
Congratulations it’s closing day! Your moving van is packed and ready to go. But you may learn that you will not receive the keys to your new home, because the closing cannot be completed on that day. While not everything required for the closing is up to you, as the buyer, to bring, you can help avoid the frustration of a delayed closing by bringing certain documents and other items along.
What Is a Closing?
Simply put, a closing is the final performance of all of the agreements you made with the seller and your lender for the purchase and financing of your new home. If you are buying solely with your own cash, no lender will be involved. If you are financing your purchase, however your loan will close at the same time and place as your purchase.
A closing is often called “settlement” because you — as buyer — along with your lender and the seller are “settling up” among yourselves and all of the other parties who have provided services or documents to the transaction.
Settlement involves the simultaneous exchange of documents, and funds required to complete the transaction. You pay the purchase price to the seller with a combination of your down payment, your own funds, and the proceeds of your loan. In exchange, the seller gives you a deed and other transfer documents, and clear title to the property.
You receive the proceeds of your loan from your lender — the face amount of the loan less fees and initial interest. In exchange, you give your lender a written promise to repay the face amount of the loan, and a lien on the property. The seller pays off the old loan and pays commissions to the real estate agents (per the listing agreement between the seller and the listing agent). Both buyer and seller pay their respective fees and costs to the various parties who contributed funds, services, or documents to the closing.
Exercise your writing hand, and bring your favorite pen to the closing, because you will be signing a lot of documents.
What and Where Your Closing Will Take Place
If you are taking out a loan, your closing will take place at the office of a settlement agent, also called an “escrowee.” The escrowee can be the title company — that is, the company that insures your ownership of the property. However, in some states (such as Alaska), or local areas (such as Southern California), you are more likely to close at the lender’s office, or at an escrow company. Upon request, some title or escrow companies will send a mobile escrowee to close in a location convenient to all of the parties.
If you are purchasing your home for cash, no lender is involved, so you and the seller can decide the most convenient closing location. Your attorney, or the seller’s attorney, may offer his or her office, but restrictions in client trust accounting may make it impossible for the attorney to disburse funds immediately.
Some closings are “witness-only.” That means that a notary or attorney goes to a location convenient to the buyer and seller to provide the loan documents and disbursement services. However, the notary or attorney will not explain the legal effect of the documents or the closing. Witness-only closings are not legal in all states. For example, Connecticut, Delaware, and Georgia require an attorney to complete all aspects of the closing. These closings will often close in the attorney’s office.
What to Bring to Closing
To help remember what to bring during this very busy day, you might want to create a checklist. Your list will vary depending on:
- the type of property: for example, a free standing home, condominium or co-op
- the terms of your purchase contract
- the terms of your loan, if you are taking out a loan, and
- state and local real estate closing rules and customs.
This article lists many of the common last-minute closing requirements. In some places, your real estate sales agent, attorney, or the escrow company (sometimes called the “escrowee”) performing the closing will furnish some or all of the suggested items, so you should ask before commencing work to attain these items.
Closing Items for All Purchases—Cash Deals or Loan TransactionsWhether or not you have a lender, you may need to provide documents to the escrowee. These usually serve to comply with the terms of the escrow or help the title insurer clear the property title of liens or other defects that could affect your ownership.
Some of the more common title clearance items collected from buyers by the escrowee for the title insurer include:
- Photo identification. Your signature will be notarized on various loan and title documents, so bring your state-issued photo identification, such as a driver’s license, to the closing — even if your purchase is to be made solely with your own cash.
- Funds. Your attorney or the escrowee will calculate the amount of money you need to bring to the closing. You may want to include a small overage as a cushion to cover any unanticipated closing cost. Recent changes to “good funds” rules require you to transmit all but minimum amounts to the escrowee by wire transfer. Do not expect to bring a check, even a certified check, to the closing without confirming that the escrowee will accept it. Also, request the wire from your bank a day or two prior to the closing if you can, and give your bank the date the funds must be received — usually the closing date. Some attorneys and escrowees ask that the buyer have the funds delivered the day before the closing to avoid delays, particularly if the closing is scheduled early in the morning, or the day before a weekend or bank holiday.
- Separation agreement or divorce order. If you are separated or in the midst of a divorce, a separation agreement or an order from the divorce court could affect your purchase in some states. Ask your attorney, or the escrowee if you have no attorney, whether you should bring your separation agreement or any court orders relating to your separation or divorce to the closing.
- Revocable living trust. If you have a revocable living trust, and wish to designate your trustee as the owner of the property, you should bring a copy of the trust document to the closing. The title insurer will want to examine the trust document to confirm that the trust can hold property and take out loans if a lender is involved. The escrowee will want to confirm that the proper parties are signing the buyer’s documents.
- Documentary or transfer stamps. Some states, counties, and municipalities have a transfer tax that is satisfied through the purchase of stamps to be attached to the deed, which is the document that transfers the property from the seller to the buyer. These may be called transfer stamps or documentary stamps. Often, at least one or more of these stamps are the buyer’s responsibility to purchase prior to the closing. Ask your attorney, the escrowee, or the state, county, and municipal officials where the property is located whether you must purchase these stamps prior to the closing, and if there are any conditions that must be met prior to your purchase. For example: you may need the seller’s signature on transfer declarations, or the seller may need to allow an inspection of the property, or all of the seller’s debts to the state or county or all municipal debts (i.e. traffic violations or other tickets and water or sewer charges) may need to be fully paid before you can purchase the stamps.
Closing Items for Purchases With Loans
If you are taking out a loan to help finance your home purchase, the lender will provide you with a loan commitment. It describes the terms of your loan and will likely include a list of items needed to close the loan. Read the loan commitment carefully, looking for what you are required to do at, or bring to, the closing.
However, the loan commitment often omits some of the standard or customary documents, or lists them in the boilerplate. So, if you are taking out a loan, you may also need to bring the following to the escrowee for delivery to the lender:
- Homeowners insurance certificate. All lenders will require you to furnish the certificate for your homeowners insurance in the greater of the amount necessary to cover the replacement cost of the home or the amount of the loan, and showing the lender as an additional loss payee. Lenders are particular about how they are named in the homeowners insurance policy, so ask your lender to give you the exact language, and furnish it to your insurer.
- Wind insurance. Your lender might require a wind rider to your homeowners insurance if the home is located where there is tornado or hurricane activity.
- Flood insurance. The lender will require flood insurance for homes within a national flood hazard area. You may want to look into buying flood insurance even if not required by the lender.
- Earthquake insurance. The lender may require earthquake insurance in certain locations where earthquakes are possible, and where the state does not mandate the coverage be part of a regular homeowners insurance policy or provide the insurance from a state pooled fund. If you must buy private earthquake insurance, review the policy carefully, and make sure you have chosen a plan with a deductible that fits your personal financial plan.
For all of the insurance policies described above, you should also consider the following:
- Start date. All insurance should commence on the closing date.
- Insurance for condominiums and co-ops. If you are purchasing a condominium or co-op unit, the building management, either the association or a separate management company, will provide you with a certificate of insurance covering the jointly owned portions of the property. The certificate must name the lender as loss payee as described above, so you should provide the exact language provided by the lender for naming it as loss payee to the condominium or co-op manager. This applies to all types of insurance required by your lender.
- Paid receipts. In addition to the insurance certificates for all insurance required by your lender, you should bring evidence that you paid the first terms premium for each policy you are required to.
- Pest inspection. Some loans require a wood-destroying pest inspection. The rules for Veteran’s Administration (“VA”) and Federal Housing Administration (“FHA”) loans are now less restrictive than in the past, so you should ask your FHA or VA lender whether a termite inspection will be required for the particular home you are purchasing.
- Septic letter and/or well letter. If the home you are purchasing does not connect to municipal water and/or sewers, you may need a septic letter from the local health department. If you are buying with a VA or FHA loan, the letter may need to contain some specific language that will be available from the lender.
- Judgment or lien release. If you have a judgment against you from a prior lawsuit, or debt, you may have to bring a written, signed, and notarized release to the closing. Your attorney or escrowee can help you obtain this item.
- Construction lien waivers. If you have contracted for improvements on the property, you may have to bring a contractor’s sworn statement and lien waivers to the closing. In some states, contractors get an automatic lien on the property as of the date of the contract for the work.
- Documentary stamps. Some states require the buyer to purchase stamps similar to documentary or transfer stamps (described above) for the mortgage.
If you aren’t sure whether you have all these items, or need them, double check with your agent, attorney, or title or escrow company.
When the Closing Is Over
When all the above is done, you become the owner of the property. You will be allowed to take possession immediately or shortly after the closing, unless you have made an agreement with the seller to take possession either earlier or later. All of the requirements, tasks, and other promises in your contract with the seller will be met, completed, or delivered, unless you have made post-closing agreements. Common post-closing agreements involve reimbursements for real property taxes when the exact amounts to be due are unknown at the closing, or repairs that could not be made prior to the closing.