Your "Closing on a House" Questions Answered header image

Your "Closing on a House" Questions Answered

Purchasing a home is a huge milestone. You’ve saved, you’ve done your research, and you’ve probably walked through quite a few houses before you found the one that feels like home. But now the time has come to close on your new home, and you may be left with a few questions. Luckily, we’re here to help.  From gathering the necessary mortgage documents to determining the house closing timeline, below are some common questions—and answers—about what to expect when it’s time to close on your new home.

How long does it take to buy a house?

There is no hard and fast answer to this question; the timeline to close on a home varies person to person. It may take you a month or two to find the home that’s right for you, then you have to factor in financing. Setting a budget and getting pre-approved for a loan within your price range can help speed up the process, and can give you an advantage if you find the home of your dreams—you’ll want to be able to make a solid offer and close on the home in a timely manner, especially if you have competition!

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What is closing on a home?

Closing is when all involved parties sign the papers that officially transfer ownership of the property over to you. The day before closing, it’s helpful to gather any documents related to the purchase of your home, such as your loan estimate, contract, proof of homeowners insurance, home appraisal, inspection reports, and closing disclosure. At the actual closing, you will be expected to accomplish two things: sign legal documents, and pay closing costs and escrow items.

At closing, you will receive the following documents:

  • Closing disclosure: provides details of your mortgage loan, estimated monthly payments, and closing costs.
  • Mortgage note: indicates the amount and terms of your loan and what legal action the lender can take if you fail to make payments.
  • Mortgage or deed of trust: secures the note and give you lender a claim against the home if you do not honor the terms of the mortgage note.
  • Certificate of occupancy: applies only if you are the first occupant of a newly-built home, and is required for you to move in.

How long does it take to close on a house?

Currently, the average time to close on a mortgage loan is 50 days. Timing on this actually depends on several factors, such as whether you are financing or paying in cash, and what type of loan you have applied for. For example, some loans require additional underwriting, and could take up to 60 days for processing.

What are closing costs?

Closing costs are the fees charged by the lender at the closing of your house. Many buyers often wonder what they can expect closing costs to be. It depends on where you live, what type of property you buy, and the type of loan you use. Typically, they add up to between two to five percent of the purchase price of your home. 

Can closing costs be included in a mortgage?

Yes, but it comes at a price. If you don’t pay closing costs up front, you may be charged a higher interest rate by your lender. The closing fees could also be included with your mortgage, which means you’ll pay interest on your closing costs, too.

Do sellers ever pay home closing costs?

The good news is that closing costs are negotiable. Sometimes the seller will agree to take on the buyer’s closing fees.  As a buyer, you will have more costs than the seller, and sometimes they will agree to pay the closing costs. This can be tricky if you purchase a home in a seller’s market; if you received two offers for the same amount, but one buyer is asking you to pay closing costs, the answer is obvious. However, in a buyer’s market, you’re more likely to have extra negotiating power. 

What is escrow?

Escrow is when an impartial third party holds on to something of value during a transaction. For example, when you make an offer on a home, you will have to put down some earnest money.  That money will be placed in escrow, where it will be held to ensure both parties (the seller and the buyer) receive what they are due at the appropriate time.

You might also encounter the term “escrow” in regards to funds that are held by your lender to make payments for your homeowners insurance and property taxes. Escrow tends to make things easier, because a portion of your insurance and taxes are collected along with your monthly payment and are paid when those bills are due. It helps you, because you don’t have to remember to set aside money each month for taxes and insurance. And it helps your lender, because they know in advance that those bills will be paid in full.

When do I need to buy homeowners insurance?

You will probably need to buy homeowners insurance before you close on your new home, especially if, like most people, you have to finance it. Your home will have been appraised as part of the underwriting process, so purchasing homeowners insurance falls early in the house closing timeline. Unless you agree to an escrow, you will typically be asked to provide proof that you’ve prepaid one year’s worth of coverage before closing. How much coverage do you need? Amounts will vary by lender, but you should have enough to rebuild your home should the worst happen.

There are two basic types of homeowners coverage out there:

Replacement Cost Coverage
Pays the full amount to repair or replace the damaged area of your home, without regard to depreciation.

Actual Cash Value Coverage
Reimburses you for covered losses to your home up to the current value. The age, condition and worth of your home are taken into account when settling losses.

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Protect What Matters Most

Now that you understand the house closing process and timeline, do you still have questions about homeowners’ insurance? We’ve got answers! Your local Farm Bureau agent can help ensure that you have the coverage you need, when you need it. We know that a home is more than a roof over your head; for questions about how to protect your home and the other things that matter most, contact your agent to learn more.

Resources:
http://www.homes.com
http://www.bankrate.com
https://www.zillow.com

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