Ask an expert:The closing process

Q: What's involved in closing on a home?

A: Closing consists of all the necessary final steps involved in sealing the deal on a home purchase. It includes:

The offer to purchase

There's no foolproof way to make an offer that's guaranteed to be accepted by the seller. But once you find your perfect house, it's wise to move fast. A good rule of thumb is to make an offer that's eight to 10 percent below the asking price, though that might not work in some areas based on trends in the market. This gives you some room to negotiate, but don't top what you've predetermined to be the highest price you can afford.

The down payment

This is a demonstration of good faith and commitment by the buyer to the seller. It is usually between five and 20 percent of the home's purchase price and is included in an offer to purchase. Either the real estate agent or the seller's lawyer holds the deposit in trust until the deal closes. If you decide not to close on a deal once your offer has been accepted, you may lose your deposit and be sued for damages. If the seller does not accept your offer, your deposit will be returned.

Contingencies

These are certain requirements specified in a contract that need to be met before the buyer is required to close. Typical among them: the buyer's securing of financing and an acceptable house inspection. Generally speaking, an inspection contingency covers a 10-to-14-day period from the acceptance of the contract, and financing contingencies run for 30 days. But in a seller's market, buyers may be asked to fulfill their contingency requirements in shorter time frames.

Home inspection

In a home inspection, a professional conducts a thorough examination of a property to assess its structural and mechanical condition. The idea here is that a trained home inspector will be able to catch potential problems that a buyer might not detect.

The contract

This follows the acceptance of an offer by the seller, and it is a legal and binding obligation, on the part of the buyer, to purchase the property if any contingencies are met. It outlines the details of the transaction, including: a description of the property, the selling price, the date of closing, the possession date and any applicable contingencies.

Settlement sheet

Also called a “closing statement?or a "settlement statement," this is a document that the Department of Housing and Urban Development requires to account for all financial aspects surrounding the sale and purchase of a home. It provides an enumerated list of the funds that were paid at closing. Items on the statement include real estate commissions and initial escrow amounts (money or securities deposited with a neutral third party -- the escrow agent -- to be delivered upon fulfillment of certain conditions). The Real Estate Settlement Procedures Act requires that a copy of the settlement sheet be distributed to both parties at least one day prior to settlement.

Closing documentation

Before you can close on a house, some paperwork must be completed. This includes a title search to make sure the title is clear, title insurance to protect the buyer and the lender from an oversight regarding a claim on some aspect of the property and an application for homeowner's insurance (necessary for securing a mortgage).

Closing costs

The total amount of closing costs varies, but may include: a loan origination fee, an appraisal fee, the cost of a credit report, a lender's inspection fee, the cost of title insurance, a mortgage broker fee, taxes and a fee for document preparation. Your lender is required to give you prior notice of fees associated with your loan.

Final arrangements

Before the deal is closed and you take possession, you must make some practical arrangements regarding utility service and first mortgage payment.

Settlement

Settlement describes the payment of the balance of the purchase price the buyer owes on the property, and the transfer of the title. It takes place on the possession date specified in the agreement.

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