What happens at closing?

Closing, in a nutshell, is the final step in the purchase process: The buyer brings the balance of the down payment on a property, and then that property is legally transferred to the buyer’s name. It’s a whirlwind of paperwork, excitement, and shock—you go from homebuyer to homeowner in a matter an hour or so. 

My own closing day was nerve-wracking before I arrived, and I remember getting hung up on what I would wear. I changed a few times, settling on a simple, professional-looking outfit. When I got to the law firm where my closing was to take place, I immediately felt a sense of relief: The listing agent showed up in house key-printed leggings—a melange of various key shapes all in garish colors like fuschia, lime green, and orange. She called them her lucky closing pants, and the closing went off without a hitch.

The takeaway? Wear what makes you feel comfortable and confident. Of course, it’s also helpful to know what else you can expect besides what outfit best says, “I’m a homeowner now.”

It Might Not Be Called “Closing” At All

“In some states, they call it ‘closing,’ and other states use the term ‘close escrow,’” says Washington, D.C.-based associate broker and Realtor Melissa Terzis. “But these basically mean the process by which you close the transaction on your home.”

You’ll Most Likely Close at the Settlement Agent’s Office

If you’re taking out a loan to purchase your home, the closing will take place at an office belonging to the settlement agent—the attorney who oversees the closing transaction. Sometimes, you might close at the lender’s office or at an escrow company. 

If you paid cash, you and the seller can decide on a closing location that works best for each party (still, this will likely end up being at a settlement agent’s office). The settlement agent has several responsibilities during the closing, Terzis says. These include examining city and county land records, preparing the closing documents, acting as a neutral third party to represent the transaction, and conducting the settlement at a convenient time for both parties.

There Will Be Attorneys Present

While there’s something called a witness-only closing—where a notary or attorney will provide the loan documents but not explain them—this isn’t even legal in some states. Most likely, an attorney will be present for every step of your closing, explaining what you’re signing and making sure you understand the terms and conditions of the real estate transaction.

“Some states utilize an attorney to represent each side, while others have one attorney who represents the contract, called, appropriately, the settlement attorney,” Terzis says. 

In my own case, I had a settlement attorney who represented the contract as a whole. Moreover, the state where I live doesn’t allow for witness-only closings.

Other People Will Be There Too

“Your Realtor should accompany you to the closing, and sometimes, the loan officer comes as well,” Terzis says. 

Who else will fill up the room? Well, the sellers may or may not be present, but their listing agent certainly will be. If you’re sharing the title with a partner or spouse, he or she should be present as well. However, if they’re unable to be there in person, they may be able to use power of attorney on their behalf.

You’ll Be Signing a Lot of Paperwork

Essentially, a closing includes the seller signing the deed, the buyer signing a new mortgage, the seller’s team paying off the old loan, and the buyer’s team establishing the new loan. For their efforts, the sellers, agents, attorneys, surveyors, title company, and any other service providers will receive payment, also known as closing costs (see below).

“The gist of all these papers can be summed up in a little joke I make at every closing,” Terzis says. “If you don’t pay, you don’t stay.”

You’ll Pay Closing Costs…

As previously noted, any service providers who assist with your closing will collect closing costs at this time. 

“The lender has fees associated with underwriting the loan as well as collecting money for the escrow account,” Terzis says. “Then, there are the fees for the transfer of the title from the seller to the buyer, and fees for preparing and recording that deed, as well as fees for the services of the attorney who handles that preparation.”

Typically, total closing fees run about 3 to 4 percent of the purchase price, Terzis says. That’s no small amount, and doesn’t include the down payment, which will also be collected at that time. Let’s say your purchase price was $300,000, you put 10 percent down, and you had 3 percent in closing costs. At the time of closing, you’d need to have about $39,000 available.

…But You’ll Know the Costs in Advance

As of October 2015, the Consumer Financial Protection Bureau requires lenders to provide buyers with a loan estimate. According to CFPB, this form “provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan.” You’ll receive this information very early on—in fact, lenders are required to provide it within three business days of your loan application.

“If the lender says it will cost $1,000 for them to underwrite the loan, they’re not allowed to change that figure at the closing table,” Terzis says. In fact, most of the fees are not allowed to change, with the exception of things like property taxes, which may change slightly if the closing day shifts.

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