You’ve signed a contract, qualified for a mortgage and finally, the waiting is over.
Your builder notifies you that your new home is completed and ready for closing. What happens next?
“Closing a home can be a very stressful time for buyers,” says Teri Wilber, customer experience coordinator for Grenadier Homes in Dallas, Texas. “Communication with the sales counselor and builder is a key factor in helping ease anxiety. When the buyer is informed throughout the process, the stress is greatly reduced.”
The process leading to closing, and the closing itself, vary widely depending on what state you live in. Here’s what you need to know.
What is a Closing?
A real estate closing — also known as a “settlement” — is the process by which title is conveyed from seller to buyer. Prior to the 17th century, title was transferred through a formal ceremony in which the seller would hand the buyer a branch or twig as a symbol of the land itself.
Needless to say, things are now a bit different.
Today, a typical closing involves a flurry of legal documents being signed and passed around a conference room table. It has two parts. During the mortgage portion, the buyer signs the note, mortgage and all other papers required by the lender. In the title closing, the seller signs the deed and delivers it to the buyer, thereby conveying ownership.
How Do Builders Streamline the Closing Process?
Builders want their buyers to have a smooth and pleasant closing. To accomplish this, most have developed processes that make it easy for buyers to move from contract to closing. Minto Communities in Florida, for example, has created a “Road to Home Ownership” program that informs and guides its buyers from selecting a home site, floor plan and finishes through financing, construction and closing.
“For nearly 60 years, Minto has been partnering with our customers to provide them with a truly exceptional ownership experience at every stage,” says Michael J. Belmont, Minto’s president.
Grenadier also guides its buyers, helping first-timers in particular get approved for a mortgage. “The process can feel intrusive and exhausting,” says Wilber. “We help buyers feel more confident and comfortable by preparing them for the kinds of questions they might be asked and by encouraging them to do as much legwork upfront as possible.”
Who Attends the Closing?
Depending on where the closing takes place, the following parties may be present: attorneys, a representative of the lender, a title agent, the buyer, the seller and one or more real estate agents. In New York, it’s common for a lender to attend the closing to ensure that the necessary papers are signed and delivered properly. In other states, the settlement agent handles this. Local custom dictates the exact procedure.
In states where an attorney is not required, it might be tempting to go it alone. But for many buyers, it’s best to retain counsel. Not only is the purchase of a home one of the largest investments a consumer can make, so an attorney can help explain the legalese.
“We can tell you what the document does or what the paragraphs mean, but if a buyer is looking for more in-depth interpretation, that’s when an attorney would have to step in and give them legal advice,” says Kevin Tacher, chief executive officer of Independence Title in Fort Lauderdale, Fla.
What are the Buyer’s Responsibilities at Closing?
At closing, the buyer signs the loan documents, provides a homeowners insurance policy and delivers the necessary funds to the attorney or other settlement agent. The exact amount, including the balance of the purchase price, closing costs and escrows, is provided to the buyer 24 hours before the closing. Buyers should carefully review the HUD-1 Settlement Statement, which is provided in advance and signed at the closing.
“The HUD-1 is intimidating to a lot of people,” says Steve Chaney, a mortgage loan originator with U.S. Mortgage of Florida. “I recommend that buyers review it in advance and get their insurance stuff lined up — buyers often wait until the last minute to get that done — so that there are no hiccups at closing.”
Prior to closing, buyers should also do a final walkthrough of the property — whether it’s new construction or an existing home. “During this process you will have the ability to test all of the appliances and the air conditioner, as well as do a spot check of the ceilings, walls, floors, etc., to ensure the property’s condition,” says Ruth Palma, vice president of sales for Fortune International Realty, the brokerage division of Miami-based Fortune International Group, the developer of numerous condominium projects in South Florida.
Should I Use the Title Company Recommended by My Builder?
If you’re buying new construction, it might be advantageous to order title insurance from the same company the builder used when it purchased the raw land. That company is already familiar with the project and will probably be able to issue a title commitment quickly. Buyers might also get a better rate by using the same title company as the builder, says Sue Goodrich, vice president of sales and closings at Cachet Homes in Scottsdale, Ariz. That’s because you might qualify for a lower rate called a reissue rate.
Perhaps the best piece of advice for newly built home purchasers is to become educated about the closing process. “Nine years ago, you could literally fog a mirror and get a loan,” says Chaney. “Nowadays, the government puts so much strain on the process — not just the mortgage process, but the whole closing process. The more you learn in advance, the better. And that is especially true for a first-time buyer.”