A Step-By-Step Guide to the Closing Process

“Closing.” If you’re about to enter a real estate transaction, you’ve likely heard that term. And you’d be safe to assume that it means what it sounds like: the end of the purchase-sale process. 

More accurately, though, closing is a process. Finalizing a real estate transaction comprises several steps, all of them necessary for a successful property transfer. And this process takes time. Closing starts when a seller accepts a buyer's offer and ends around 40 days later, at the final signing of papers. 

So, what happens in those weeks leading up to the signing, and what are each party’s responsibilities? Here’s a step-by-step guide to the closing process. 

1. Getting pre-approved for a mortgage 

This step only applies to home buyers and technically takes place before the closing process begins. But it’s an important precursor to closing success, and all parties involved in the transaction should be aware of it.

Through mortgage pre-approval, a lender assigns an estimated amount of money they’d be willing to finance to a borrower. This sum represents the amount a buyer can spend on a home and is, therefore, an important figure in their home search. If you’re a seller eager to move your property to a prospective buyer who seems like a good fit, you’ll want to ensure the buyer has the funds to afford your property. Otherwise, you’ll never get to closing.

If you’re a buyer, getting a pre-approval can make the closing process more agile. When you find your dream home, you can confidently make an offer you believe your lender will back. Be sure to keep your finances in good standing during the closing process so that the lender doesn’t have a reason to rescind or modify their offer, preventing you from completing your home purchase.  

2. Sign a contract

After a buyer makes an offer and both parties land on a final number, they sign a contract known as a purchase and sale agreement (PSA), expressing their intent to fulfill the real estate transaction. This document includes the agreed-upon sale price, contingencies (requests the buyer makes, i.e., for repairs the seller must complete), and the earnest money amount due. Earnest money is a deposit that shows the buyer’s good faith to complete the purchase.  

3. Opening an escrow account

Many real estate transactions pass through an escrow account. This is a third-party account that holds the money for the home sale until the transaction is complete and funds can be deposited to the seller, the agents (for their commission), and any other parties receiving payment. Escrow accounts help protect all players by ensuring that funds are not moved before agreements are finalized. 

4. Gathering documents 

When you’re eager to buy or sell a home, waiting 40 days can seem frustrating. But each party has a lot of work to perform in that time to arrive to closing day with all of their paperwork and finances in order. One of the foremost tasks is gathering documentation. Here are two documents the respective parties should have on hand. 

• Seller’s disclosure: If you’re a seller, your listing agent will help you prepare your disclosures, which inform the buyer of known issues with the property. You’ll have to get a home inspection if you haven't already, so that a professional can determine the state of important aspects of your home, like the structure and roof.

• Closing disclosure: Buyers need this document from their mortgage lender before the closing meeting. In fact, the law stipulates the lender must send a closing disclosure to a borrower at least three business days in advance. This document outlines the loan terms and amount, associated fees, and how much money the buyer needs to bring to closing. 

5. Conducting a title search

A title company or attorney will conduct a title search to ensure that the property in question is legally held by the owner and that there are no outstanding claims on it.

Then, the buyer, seller, and their representatives will receive a title insurance commitment. This document expresses the company’s agreement to provide title insurance on the property once the real estate transaction is finalized. Title insurance protects the owner and their mortgage lender from losses associated with liens (a collateral claim on a property for debt owed) or encumbrances that limit the home from being legally transferred. 

6.  Understanding closing costs 

“Closing cost” is an umbrella term for any fee involved in finalizing a real estate transaction. Both parties should be aware of what they’ll owe on closing day to avoid surprises and the ensuing setbacks. 

Buyers should be aware of charges associated with their mortgage processing, like origination fees (administrative costs) and application fees, as well as their down payment sum. Buyers should know exactly what their “cash to close” amount is—money they must bring to the closing day meeting to cover costs. 

And sellers, who are often responsible for covering full real estate commissions, should be crystal clear on what percentage of their sale will be paid out of escrow to the realtors.  

7. Reviewing closing documents

This step is more of a running process throughout the days leading up to the closing meeting. Anytime you receive paperwork, whether you’re the buyer or the seller, check it for accuracy. A buyer, for example, should triple-check that the interest rate and other mortgage terms are correct across all of the documentation. And a seller should ensure they have a record of all repairs done on their property to prepare it for sale. Agents will help both parties navigate paperwork, understand it, and guarantee its correctness. 

8. Getting ready for your closing date

As the big day approaches, both parties should make sure they have everything they need for a successful meeting. Here are a few items you should prepare to bring to the closing table, though it’s wise to get an exhaustive list from your real estate agent. 

• A government-issued photo identification (like your passport or license) 

• The Closing Disclosure 

• If you’re the seller, keys, and codes to the property 

• If you’re the buyer, a certified or cashier’s check for closing costs 

9. Signing documents

Set your alarm and check traffic ahead of time to ensure you make it to closing day on time. After a long road, this final step in the process completes the transaction—and it only takes a couple of hours. Essentially, both parties will sign the final purchase agreement, the seller will make payment, and the buyer will transfer the keys to the property’s new owner. 

Sellers: there’s one more step for a flawless closing 

If you’re a home seller, you want to close on the highest possible sale price possible. Avoid accepting a low offer from a buyer because your home requires repairs or could use some cosmetic upgrades. Counter those contingencies by getting your property in tip-top shape. 

Titus offers zero-interest closing lines of credit (CLoCs) for sale-maximizing renovations and repairs to home sellers working with affiliate agents. And Titus doesn’t charge sellers out-of-pocket or upfront fees. Learn how to partner with a Titus real estate agent here.