Settlement and Taking Possession
TLDR: Familiarize yourself with the closing documents
For an introduction to settlement, closing, and possession, refer back to Step 2: Settlement and Possession.
The settlement process is usually fairly simple: you transfer the down payment and closing costs to the title company, sign an enormous pile of papers, and get the keys to the property. You'll need to bring your ID, and if the property will be purchased in the name of a legal entity or trust, you'll need documents that prove you have the authority to make the purchase. The title company will tell you what precisely you'll need before closing.
Closing Documents for Buyers
Below is a list of documents you'll likely see at closing. Familiarizing yourself in advance will go a long way toward preventing you from feeling overwhelmed. Even a rudimentary understanding will instill the confidence to ask questions.
Closing Disclosure
Timing: Provided at least 3 days before closing.
The closing disclosure itemizes credits and debits in the transaction, including a summary of what the buyer owes and what the seller is owed.
Loan Estimate
Timing: Provided 3 days after application, updated if needed.
The loan estimate presents you with details about your loan, including your monthly mortgage payment and many of the factors that affect it.
Loan Application
Timing: Provided to you at closing.
You'll simply review the loan application and verify that the information is correct.
Proof of Homeowners Insurance
Timing: Provide to the title company prior to closing.
Most lenders require proof of Homeowner's Insurance prior to closing, which can be provided in the form of a declarations page or policy document. Be sure to check with the lender about what type of insurance they require to ensure your policy meets the minimum standards.
Mortgage Note
Timing: Provided at closing.
Sometimes called a promissory note, a mortgage note is a legally binding contract stating that the buyer will repay the lender the full amount borrowed. The promissory note is attached to the deed until the debt is repaid in full.
Fun Fact
If the seller has a loan on the property, the seller's loan must be paid off and the promissory removed for clear title to transfer to the buyer.
Escrow Account Statement
Timing: Provided at closing.
The escrow statement describes how much of your monthly payment will cover your property taxes and homeowners and mortgage insurance premiums.
Deed
Timing: Signed by the seller prior to closing. Signed by the buyer at closing.
The document that transfers ownership of the property from the seller to the buyer.
Title
Timing: Rights transferred upon settlement.
Unlike the physical (or virtual) documentation, title refers to the conceptual ownership rights that transfer after all documents are ratified.
When should closing be scheduled?
While you came to an agreement with the seller on a closing date when you made the offer, settlement usually gets scheduled concretely after the big milestones are hit, such as getting approved for financing and other contingencies are satisfied. Most closings don't get scheduled until later because not every deal ends up closing, and when they do, there are often delays past the initially scheduled settlement date.
Fun Fact
Closings require the coordination of many parties: You, the seller, the title company, the notary, the lender, the inspector, the appraiser, and any contractors that may be completing repairs. Ensuring that all parties have completed all necessary steps and also have availability on the preferred day to close can be cumbersome, which is why closings aren’t typically scheduled until later in the process.
Where will closing happen?
In short, it depends. Some states require a "wet" signature to transfer ownership so settlement historically occurred in person at title companies. After the global COVID 19 pandemic, however, many states enabled online closings for a limited duration. Some of those altered signature requirements have been permanently extended, and with the rising popularity of online title companies, the world is your oyster.
What happens if there are delays with closing?
This depends on who or what is responsible for the delay, how long the delay is, and how impactful the delay is to the other party.
As far as financial repercussions, the title company will need to modify the amount you'll owe at closing to prorate costs such as prepaid taxes. If the closing is delayed by a few days or less, the seller can typically make do if you're obviously committed to closing on the property. If, however, there is a larger problem such as the sale of another property being significantly delayed or canceled, you may end up in breach of contract for not closing by the day you cited in the contract. If this is the case, the seller has the option to cancel the contract and continue marketing their property.
The buyer and their lender are usually the reason for the delay, but if the seller needs more time to move out their belongings after closing occurs, they may ask if you’d be open to a post-occupancy agreement, which is like a short-term rental lease for after closing.
Essentially, it depends on how long the delay is and how pressed the seller is to close.