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Mortgage closing process: all you need to know
You’ve found your dream home, made an offer and the seller has accepted. Your work isn’t over yet, though — you’ll still have to go through the mortgage closing process, which includes paying for mortgage closing costs.
Depending on your unique situation, the mortgage closing timeline can be anywhere from 30 to 60 days on average and includes steps such as a home inspection, appraisal and finalizing of financing. It ends with you signing the closing documents and handing over a check for your down payment and closing costs.
If you’re thinking of buying a home, it’s critical that you know exactly what you’re getting yourself into before you start the home buying process. Otherwise, you may get through the majority of the process, only to be surprised by what the closing process entails — and that’s never a good thing.
What are mortgage closing costs?
When it comes to a home purchase or refinance, the cost of the house isn’t the only expense you’ll have to account for. Before you can officially close on your new home, you’re responsible for closing costs, or the fees you’ll pay to various parties, such as the lender and the title company.
There’s a lot that goes into the buying process. Your lender incurs costs for things like your credit application, home appraisal and title search. Closing costs, which typically range from 2% to 5% of the loan amount, are what cover those expenses.
[ Read: Best Low and No Down Payment Lenders ]
Both the buyer and seller are generally responsible for some closing costs. However, either party can negotiate to have the other cover some of their portion of the costs. A buyer may offer to cover the seller’s closing costs to make their offer more attractive, or may request that the seller pay more than their normal share.
You’ll usually pay these costs at the actual closing. But in the case of a no-closing-cost mortgage, your lender may wrap them into your loan amount or as a trade-off for a higher interest rate.
Typical closing costs
Mortgage closing costs usually cost somewhere between 2% and 5% of the loan amount. According to Zillow, the current median value of a single-family home is $256,663.
Using this figure, you could expect closing costs to range between $5,133 and $12,833, but it’s important to remember that closing costs also vary regionally. The national average is $4,876, but you’re likely to pay far more in the Northeast than you are in the Midwest.
Typical closing costs include:
- Application fee: The amount the lender charges to process your loan application ($500)
- Appraisal: The cost to have a third-party professional determine the value of the home ($300-$500)
- Credit report fee: Covers the cost for your lender to run a credit check ($25)
- Origination fee: The amount the lender charges to initial the loan ($125)
- Title search: The cost to search local property records to ensure there are no conflicts with ownership of the home ($450)
Additional miscellaneous closing costs may include attorney fees, a closing fee, courier fees, discount points, homeowners association transfer fee, pest inspection fee, paint inspection fee, etc.
How long does closing a mortgage take?
According to Ellie Mae, the average mortgage closing timeline is about 47 days. There’s a lot that goes into the closing process, and the exact timeline may be shorter or longer depending on each situation.
There are plenty of factors that can delay the closing process. In fact, about one-third of transactions experience some sort of delay.
Some of the most common causes of delays are:
- Financing: If the financing process doesn’t go as smoothly as anticipated, the mortgage loan timeline may experience a delay. For this reason, it’s best to go into the home buying process with a preapproval from the mortgage lender of your choice.
- Appraisal: If an appraiser finds the home’s value to be less than the offer price, it may impact financing. Mortgage lenders may be hesitant to write a mortgage loan larger than the home is actually worth. In that case, the buyer and seller may have to negotiate a new agreement.
- Inspection: Purchase offers are typically contingent on a successful home inspection. If an inspector finds damage or problems with the home, the parties will have to decide who’s responsible for those repair costs.
[ Related: The Pros and Cons of Mortgage Refinancing Appraisal ]
Ways to prepare yourself for a mortgage closing
The mortgage closing process will go a lot more smoothly if both the buyer and seller come prepared. You can get ready for your loan closing by doing the following:
Be sure you understand the agreement
You’ll have a lot of paperwork to sign on closing day, and you want to make sure you know exactly what agreements you’re entering into. Make sure you thoroughly ready anything you sign, and consult your real estate agent or an attorney to help explain anything you’re unsure of.
Make sure your financing is in order
The mortgage closing is usually dependent on the buyer having financing in place. Be sure to arrive at the closing with a check to cover any expenses you’re responsible for on that day.
You should also avoid any major changes to your financial situation before the deal closes. The last thing you want is for your lender to back out at the last minute.
Bring any necessary documents
Show up to the closing with any documents you’ll need. You’ll need your identification, your closing disclosure and a check to pay any closing costs or other expenses you owe.
Tips on a mortgage closing
The home buying process can be overwhelming, especially for first-time homebuyers. In order to be prepared, you need to know what happens during a closing.
The more you know what you’re getting yourself into, the better. Here’s what you can expect to happen at your closing:
- Attendees will include the homebuyer, the seller, each party’s real estate agent, an attorney, a closing agent and a representative of the title company
- You’ll sign three primary documents: the deed of trust or mortgage, the promissory note (the contract that says you’ll pay back the lender) and a closing disclosure
- You’ll receive a loan estimate, closing disclosure, escrow statement, mortgage note, mortgage or deed or trust and certificate of occupancy
- At the closing, you’ll have to pay your down payment, closing costs, escrow funds, discount points and any other necessary fees
If you have any lingering questions about your financing or the home buying process, be sure to ask these before or at your closing. A real estate agent, attorney, or title company representative may be able to answer them. Make sure you clarify who you can reach out to if you have questions in the future.
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