Nothing strikes simultaneous dread and excitement into the heart of a real estate investor (or any home seller, really) than the words “closing day.”
Closing on a property you’re selling is exciting, for sure, but it can also come with a lot of stress and uncertainty—especially if you aren’t prepared.
So to help you out, take a look at this brief “guide” to the closing process, which will help ensure that you’re ready for the process that leads up to the closing date, and the actual closing itself.
First, here are a few quick tips to set yourself up for a successful closing:
- Gather the experts: When you sell properties, make sure that your mortgage company attends your property’s launch/open house to pre-approve any potential buyers. You might also want your Realtor and contractor to be present ; anyone who is knowledgeable about the house, the financing process, or the neighborhood will be awesome for answering a buyer’s questions.
- Build strong connections: Use the same listing agent as often as you can (or the same 2-3 listing agents in your area). This will breed loyalty. It’s also helpful to use the same title company as often as possible, so you can learn their processes thoroughly. Plus, if you use them often enough, they should compensate you with a Marketing Services Agreement.
Now, let’s get into a detailed timeline of what you can expect in the 45 days (give or take) leading up to the closing date.
T-Minus 45 Days
Around this time, the initial offer will be made. Keep in mind that these are negotiable items upon the initial offer from a buyer:
- Purchase price
- Closing date
- Transfer date
- Possession time & date
- Title company
- Inspection time and date (general home inspection, plus pest, radon and septic inspections)
- Earnest money
- Home warranty
Once you settle on those items with the buyer, you also want to make sure that you both agree on any other addendums (like a walk-through addendum, etc.) and sign your agency forms, property disclosures, lead paint disclosure, and any others.
Last, sign the purchase & sale agreement. Once this is complete, you are officially under contract! Now, the clock starts ticking toward the closing date. Yes!
Now, as the next 45 days or so pass by, make sure you’re actively taking care of all the addendums/repairs that need to be completed. Don’t wait until the last minute! Of course, we’ve all been there—painting or replacing an appliance the day before closing. But, don’t make this a habit. This is your business, and you want to have a professional reputation with your buyers, as well as their Realtors and attorneys.
T-Minus 42 Days
Around this time, the title company will pull a new title search. If you bought the house with cash, there won’t be any liens on it. If you used financing, then that’s going to show up—even if it’s from a private lender instead of a mortgage company.
Also, the local city will order the Point of Sale inspections. Typically, the local building department will want to do an inspection to make sure everything is up to code, and the buyer has to escrow money to cover these inspections. Of course, this depends on your area. Your city might not do this at all.
T-Minus 38 Days
Within seven days of the P&S contract execution, the buyer is required to make a written loan application with a mortgage lender. Then, the lender’s clock begins to tick, as they collect documentation from the buyer:
- Last two years of W-2s and tax returns
- Last two months of pay stubs and bank statements
- Proof of employment
- Credit reports from at least three bureaus
Then, the lender will order an appraisal. Some lenders will wait until they get all of the buyer’s loan documents, and this can hold things up and become a potential sticking point.
Also, the inspections will be ordered and must be performed within seven days of the contract’s execution date. Usually, the buyer’s agent will direct this process for the buyer, and will schedule the inspection with the vendors.
T-Minus 35 Days
Once the inspections are complete, the buyer and seller either need to agree to one of the following three options:
- Remove the inspection contingencies OR
- Negotiate a “punch list” of things that need to be done OR
- Agree that the buyer will assume any violations (in this case, the buyer may need to escrow money, based on your city’s code; and they usually have 90 days to fix any violations after the property’s transfer)
T-Minus 28 Days
At this point, any lender-requested repairs should be underway. You’ll also need to finalize the “punch list” with your buyer. Determine if one of you will be paying 100% of the costs or if you’re splitting it 50-50. Just keep in mind that the lender’s required repairs must be done PRIOR to closing, or the loan won’t be approved. Dun -dun-duuuuuuun!
T-Minus 14 Days
Congrats, your repairs should be completed! (Emphasis on the word “should.”) Any POS repairs required by the city, lender repairs, and buyer (general inspection) repairs should be finished or nearly finished. At this time, the lender and/or buyer will re-inspect the property and contingencies should be removed.
T-Minus 7 Days
A week before closing, financing should be close to approval, and the title company will request payoffs from the mortgage holders. Make sure you, as the seller, also ask the title company for a preliminary HUD-1 closing statement, so you can see your closing costs.
T-Minus <7 Days
A couple of days before the closing, your buyer will conduct their walk-through of the property. If everything is approved, you can remove the walk-through contingency and you’re ready for closing! The mortgage company will issue a “Clear to Close” statement and their final approval is complete.
With one day left, here’s what your timeline looks like:
- The buyer’s loan package is sent from the lender to the title company
- The title company creates a HUD-1 closing statement and final closing papers, which they email to the buyer and seller for pre-approval
- Let your listing agent review this for accuracy!
- Once approved, the buyer and seller are scheduled to sign their papers
T-Minus Zero Days – Closing Date!
On the day of the closing, keep in mind that the closer for the title company always needs a copy of the driver’s license for both the seller and buyer. Here’s what happens:
- All final signed documents are taken to the title company for review
- After the title company views the final signed HUD-1, deed, and mortgages, they confirm that the closing package is signed and complete
- Then, the title company goes to the courthouse and records the new deeds; and they release any existing mortgages/liens on the title
- The property is considered free and clear of the old mortgage and the new mortgage is recorded
- Transfer of possession takes place (keys are exchanged, lock boxes are removed, and the “for sale” yard sign is taken down)
That’s it—you did it. Don’t forget to celebrate the closing! It’s a lot of work to get to this point, so make sure you reflect on your accomplishment.