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Your Complete Guide to Understanding the 'Closing' Process

Most of us dream of reaching a point where we no longer owe money on our mortgage. That's one of many factors that makes it enticing to buy a home sooner rather than later.

While the home buying process is often exciting, not everyone is familiar with what happens during closing (and the costs they'll face).

Not sure where to start? Don't worry, we’ve got you covered.

Let's take a look at everything you need to know about.

So... What Exactly Is 'Closing?'

The closing process of buying a home actually involves a handful of different situations and is more than simply having the owner hand the keys to you.

We'll go over the most important things to keep in mind.

Entering Escrow

'Escrow' is a term that many people are familiar with but aren't quite sure what it means. To put it simply, entering escrow means that the transfer of the money and ownership of the property is in a sort of 'pending' state.

When you make an offer on a home, you'll write a check to the seller that's held by a third party so that negotiations can be made. Until an agreement is reached (or the sale is called off), this money can't be accessed by the buyer or seller.

While it may sound offputting to have your money held up (especially by someone else), it accomplishes two necessary tasks during the homebuying process:

  1. It protects you from the seller using your payment as leverage during negotiations
  2. It allows the seller to complete the transaction without concern since the third party will give them the money after an agreement has been reached

After the sale is finalized, the party holding the money in escrow will oversee that the seller is paid and the buyer is given possession of the home.

Closing Costs

'Closing costs' is another term many people have heard of but don't know what it entails. This simply refers to the expenses you'll incur from various financial obligations during the closing process.

Typically, buyers will pay somewhere between 2% and 5% of the home's total value in closing costs. While there are numerous different services and fees you'll need to pay for, let's take a look at the most notable.

Escrow Fee

The party that holds money in escrow is providing a service, so they need to be compensated. This amount will vary depending on who you work with, and the state you live in may require that an attorney is present.


An appraisal company assesses the value of the home before the transaction is completed. This will ensure that the home is being sold at a fair price relative to the market it's in.

Underwriting Fee

If you're financing your home, your lender will often research whether or not you're suitable for a loan. Since this takes time and resources on their part, you'll have to pay a fee for this service.

Home Inspection

A home should never be purchased before an inspection is completed, as some of the most concerning issues (foundation issues, wiring complications, etc.) may not be readily apparent.

Homeowners' Insurance

While different policies will require different payment, buyers will often pay for their first year's worth of coverage at closing.

Private Mortgage Insurance

Buyers who make a down payment of less than 20% of the home's total value will likely be required to purchase private mortgage insurance (PMI). If so, you'll often pay the first month of coverage during closing.

Necessary Documentation 

As you may expect, there's a substantial amount of paperwork to handle during the transfer of a property. But, the most important documents fall into two categories:

  1. The agreement between you and the seller that outlines the conditions regarding the transfer of the property's ownership
  2. The agreement you have with your lender about the terms/conditions of your financing

In order for the transaction to be official, you'll need to sign all of these documents during the closing process. Although not always mandated, it's not unwise to have an attorney present while everything is signed to ensure no complications arise.

While it's not a common occurrence, sellers will sometimes present a written agreement that requires signatures on blank lines or includes blank spaces where terms should be present.

It's imperative that you don't sign documents that include these, as the seller has the capability to add additional terms later to an agreement that already has your signature.

How Long Does The Process Take?

In 2019, studies showed that it takes approximately 45 days to close on a home. Of course, this number could be more or less depending on factors like the negotiation period, financing delays, etc.

In general, though, you can expect closing to take anywhere from 30 to 60 days on average.

If you can, it's often more financially convenient to complete closing during the middle or end of the month if you currently rent a property. This will allow you to forego paying an entire month's worth of rent at your old residence just to move out shortly after.

Closing on a Home Can Seem Difficult

But it doesn't have to be.

With the above information about handling closing in mind, you'll be well on your way to making sure that the process goes as smoothly as possible.

Want to learn more about how we can help? Feel free to get in touch with us today to see what we can do.