What Are the Five Steps of the Closing Process?
Closing on a real estate property is the final step in the home-buying process, where the title of the property passes from the seller to the buyer. The closing process encompasses several key steps—each phase has its own significance, intricacies, and potential challenges.
Below, we discuss the steps in the closing process, breaking down each stage and offering insights into the possible hurdles homebuyers might encounter along the way. With a clear understanding of what to expect, you can confidently navigate the closing process and ultimately secure your dream home.
1. Signing the Contract
The closing process begins after the buyer and seller sign the final purchase and sale contract, which outlines the price, required amount of earnest money, closing date, seller-paid closing costs, and any other important terms or contingencies. Once the contract is signed, the buyer should send the closing attorney a copy along with the earnest money.
In Georgia, a closing attorney must handle real estate transactions, including closings. The buyer should obtain a qualified attorney to oversee the matter; however, it is essential to note that the closing attorney represents the lender (unless this is a cash purchase, in which case, they represent the buyer).
2. Due Diligence Period
The due diligence period is an integral part of the home-buying process. It's a stipulated time frame, usually ranging from 10 to 20 days, during which the buyer conducts extensive evaluations of the property. This evaluation includes:
getting the home inspected for any potential structural issues,
checking for any legal encumbrances on the property, and
confirming the accuracy of the listing details.
This period allows the buyer to back out of the contract or negotiate repairs or price adjustments with the seller based on the findings of the inspection report. It is crucial to exercise due diligence to ensure the property is a sound and worthwhile investment.
3. Property Appraisal
After the due diligence period, the lender will ask that an appraiser assess the property. They can determine whether the property is listed at market value.
Suppose the property value is lower than the loan amount. In that case, the buyer's loan may fall through unless certain updates are made to the property.
4. Title Search
During this step in the closing process, the closing attorney will conduct a title search to assess the legitimacy of the property’s title. A property title is a legal document establishing the right of ownership of a particular property. It indicates who has the legal right to possess and use the property. The title often contains specific information about the property, including its location, dimensions, and any limitations on the property's use.
The closing attorney will be looking to verify that the seller has a clean and marketable title that can be transferred to the buyer without encumbrances. The search generally delves into the property's history to uncover any potential issues.
If a "cloud” or discrepancy on the title is identified, it must be resolved before the closing process can proceed. Once the title is clear, a title insurance policy is issued to protect the buyer and lender from any future claims against the property.
5. Closing Ceremony
The closing ceremony (or closing day) is the final step in the closing process. The buyer, seller, and closing attorney must be present at the agreed-upon date and time to finalize the sale. During this stage, the following will occur:
The buyer will review and sign several documents, including the mortgage agreement, promissory note, and HUD-1 settlement statement, which outlines the final closing costs.
The seller signs the deed, officially transferring ownership to the buyer. In most cases, the buyer also pays the remaining down payment and closing costs at this point.
Once all the paperwork is signed and payments are made, the buyer receives the keys to their new home. This marks the successful completion of the closing process, and the buyer is now officially a homeowner.
How Long Does It Take to Close on a House in GA?
On average, it can take 30 to 45 days to complete the closing process (i.e., from the contract's signing to the final closing ceremony). The length of the closing process can vary based on the following factors:
The home appraisal process. If repairs must be made before closing or the property is appraised at a low value, the parties may need to be renegotiated. An appraiser will also likely be asked to reevaluate the home once the repairs are completed.
Title defects. The seller cannot transfer the property to the buyer if there are issues with the title. Until the title defects are resolved, the closing process can halt. Common title defects include unpaid taxes, recording errors, boundary issues, judgment or liens, and unknown encumbrances.
The buyer’s responsiveness to information requests. Throughout the closing process, the closing attorney will contact the buyer with requests for information, such as proof of insurance, home inspection verification, and other documents. If the buyer is not responsive, that can slow down the process. The funding of the loan can also be delayed if there are delays or issues with the paperwork.
The type of loan the buyer has. Each loan type has its own set of requirements, procedures, and documentation, all of which can affect the timeline from contract to closing. While the closing process for a conventional loan can take a month to a month and a half, VA and FHA loans can take around 50 days because properties must meet more stringent requirements.
What Can Cause a Closing to Fall Through?
Unfortunately, real estate sales can fall through up to closing day. Some of the common reasons your deal may fall through include:
Financing not approved. One of the most common reasons real estate deals fail is due to buyers not securing enough financing. This could be because they didn't get pre-approved, their financial situation changed after pre-approval, or the lender's appraisal came in lower than the purchase price. Sellers can try to avoid this issue by requiring a pre-approval letter, but that plan is not foolproof. Even if buyers a pre-approved, they may not obtain official approval after making an offer.
Job loss or change. A buyer's financial status plays a crucial role in securing a mortgage. If a buyer loses their job or experiences a significant change in their financial situation, lenders may deny the loan application. Buyers should aim to maintain stable employment throughout the home-buying process, and sellers should require a pre-approval letter to verify the buyer's financial stability.
Low appraisals. If the home appraisal comes in lower than the agreed purchase price, the lender may not provide sufficient financing, causing the deal to fall through. To prevent this, sellers should price their homes accurately, and buyers should have a contingency plan in place in case of a low appraisal.
Buyer's remorse. Buyers can sometimes back out of a deal due to cold feet, especially if they feel rushed or pressured into making a decision. To prevent this, buyers should take their time during the home search and only make an offer when they're confident about the property. Sellers can help by being transparent about the property's condition and pricing it competitively.
Disagreements between parties. Sometimes, disputes over contract terms, closing costs, or included property items can result in a deal falling through. Clear communication and negotiation skills are essential in these situations. Both parties should be willing to compromise and work towards a solution that benefits everyone involved.
Talk with Our Real Estate Closings Attorneys
At Balbo & Gregg, Attorneys at Law, PC, our attorneys have successfully handled many closings. Backed by over 40 years of experience, you can trust our attorneys to support you throughout the entirety of the closing process.
Call (866) 580-3089 to request a free consultation today.
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