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While most of the real estate transaction process is fairly straight forward, many homebuyers are often concerned about the actual closing process. When a buyer and seller agree to a real estate contract, a closing date will be scheduled and a title company will be assigned to manage the paperwork. It is during this closing meeting that the funding for the property and the title to the property are exchanged. When purchasing property, it is important to become familiar with the entire closing process. Here are the typical steps involved in closing a piece of real estate:

Earnest Money is deposited along with a real estate contract for purchase. Earnest Money is an amount of money given to the seller to show the serious intent of the buyer to complete the transaction. The amount can vary by local custom and is a negotiable amount. Once the contract has been ratified, the Earnest Money is deposited and subtracted from the closing costs the buyer owes at settlement.

A title check is run on the property being purchased. During the disclosure period of a real estate transaction, the title company will run a title check to ensure that there aren’t any unsettled claims on the property or any tax liens open for the property.

Homeowner’s insurance is obtained for issuance at closing. Before closing, mortgage companies will require the buyer to obtain homeowner’s insurance to protect themselves financially in the event of a hazard or theft occurring on the property.

Disclosures and inspections are performed. The inspection is generally for the benefit of the buyer. An inspection looks into any defects on the property and any potential repairs that may be required in the near future. If defects are found, the buyer has several options including canceling the offer for purchase, requesting that the items be addressed and repaired or that the seller pay a fixed amount at closing to cover the estimated repairs.

An appraisal of the property is performed. An appraisal provides the market value for a property and is sometimes used when generating an offer, but is more commonly used by a mortgage company to determine the fundable value for the property.

Loan approval is obtained if it was not pre-approved. If possible, it is recommended to obtain financing before searching for a property. A mortgage company will provide a list of items and questions that they will need in order to obtain a decision about funding. The mortgage company or mortgage broker will provide the total financing approved, the interest rates and the loan terms for the property in question.

Final closing costs are prepared and communicated to the buyer and the seller. The closing meeting occurs at the title company and involves a variety of paperwork required to fund the mortgage, to transfer funds from the buyer to the seller and to transfer the property from the seller to the buyer. The term Settlement is used interchangeably to refer to this meeting.

The title is transferred from the seller to the buyer. Once the closing paperwork has been completed, the title company will provide the process for transferring the property’s title from the seller to the buyer. The buyer is then the legal owner of the property and is responsible for the annual real estate taxes.