Closing Basics, Documents, and Costs

A sample closing cost estimate

What this article is all about:


What Happens at a Closing?

Your purchase contract is now wrapped up, and your long and winding road to home buying successfully ends on the day of closing (also known as escrow closing, or settlement). You will go to the title company to sign your mortgage and other documents to transfer ownership. All or some of the key players who have had something to do with the contract – the seller, real estate agents, mortgage lenders, attorneys, title company closing agents, surveyors, insurance agents – will be there on your big day.

At the closing, you will see many documents required by your mortgage lender, the title company, and local and state agencies. It can be easy to get distracted or frustrated by all the dotting of I’s and crossing of T’s. Keep in mind, all the paperwork is to guarantee that the transfer of the property to you is legal.

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Key Elements of a Closing

These are the important things to know about a closing:

Closing. You and the seller finalize all the terms in the contract – and the property is all yours! The seller gives you the title in exchange for the contract purchase price. He also delivers a deed, title evidence and insurance, the property’s plat of survey, leases (if applicable) and proof of any required repairs based on the home inspection. It’s recommended that you attend the closing with an experienced real estate attorney.

Escrow closing. When all the aspects and documents related to the transfer of the property from the seller to you are finalized (similar to a closing). Escrow agents may be title companies, attorneys, trust or escrow companies. Check with the laws in your state to see if escrow closings are legal, and if so, what the procedures are for holding one.

Survey. You should receive a new property survey, or plat, when you buy a home. This diagram legally confirms the exact property boundaries and dimensions of your home.

Title. The legal document that says you own the property. Inquire about the different ways you can hold a title in your state (for example, owning a home with someone else).

Title insurance. This is given to you, and then you have to deliver it to your mortgage lender. The insurance policy is issued after a search for a property’s public records, which includes liens, conditions, restrictions and other matters that might affect the marketability of the title.

Deed. The document that conveys the title of ownership of a property.

IRS Form 1099. The closing agent must report all real estate transactions to the Internal Revenue Service.

Real Estate Settlement Act. A form known as the HUD-1 statement, or the Uniform Settlement Statement, is required in all residential real estate transactions with full disclosure of all settlement costs. This form applies to those loans financed by all U.S. government-related mortgage loans.

Closing statements. Part of the HUD-1 statement, this lists all itemized payments and credits of a buyer-and-seller transaction. Real estate brokerages or attorneys prepare closing statements.

Prorations. Some expenses or items related to the property or mortgage loan are prepaid or paid in arrears must be prorated between the buyer, seller or mortgage lender at closing. Real estate taxes, condominium assessments and utility costs are common expenses that are prorated between the parties.

Homeowners insurance. Most mortgage lenders require that you bring proof (known as a “binder”) that you have homeowners insurance on the property you’re buying.

Keys and automatic garage door openers. The seller must bring you all the keys of your new home, including the one for the mailbox, and the garage door openers. Handing over the keys to the buyer at the end of closing is known as “delivering possession of the property to the buyer.”

Certified checks. Most closing agents require certified checks for any payments due at closing. These checks are proof that the money is available when the check is presented.

Photo identification. All closing agents require you to bring a photo I.D. to a closing.

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Common Closing Costs

Title: $500-$900

Title insurance: $300-$500

Recording fees: $150-$300

Mortgage: $700-$2,000

Attorney: $400-$2,000

Real estate transfer taxes: Varies by location

Homeowners insurance: $200-$2,000

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