The home-closing process begins when a purchase offer is accepted, and it can drag on for longer than you might think. According to Ellie Mae's 2021 Origination Insight Report, on average, it took about 48 days to close on a house in 2020.
The buyer's lender controls the amount of time it takes to process and close the loan unless the buyers are paying all cash. A buyer and seller can agree to close sooner, and they can put this in the purchase contract, but the lender must be able to perform its role during that time frame. If not, it doesn't matter what date is chosen, because the closing can't occur if the lender isn't ready.
The Escrow Closing Process
Your closing could be handled by a number of people or groups. It depends on where you're buying the home. The closing agent could be an escrow officer, a closer, the title company, or a real estate lawyer.
Closing processes can vary widely even within the same state. For example, the escrow process is different in northern California and southern California. Escrow orders are drawn and signed shortly after offer acceptance in southern California, but they're drawn and signed just before closing in the northern counties.
All the terms of the purchase contract must be met before escrow can close. The seller then offers the deed, and the buyer puts down the funds.
Some common purchase contract terms include:
- Earnest money put down
- Home inspection finished or waiver signed
- Property appraised
- Buyer fulfills all loan terms, such as buying a homeowner's insurance policy
- Seller completes any other requests as agreed, such as pest inspection, roof certification, home warranty, or repairs (if any) according to the Request for Repairs
- Final walk-through finished or waiver signed
- Escrow terms signed
- Deed signed and notarized
- Promissory note signed
- All papers signed
- Lender has sent over buyer's funds
- Buyer has put down the rest of the down payment and closing costs
How Long Does a Home Closing Take?
The amount of time a home closing takes will depend on a few factors.
Buyers who have been pre-approved for a loan, instead of pre-qualifying, are often able to close sooner. The pre-approval process means an underwriter has checked certain facts and details ahead of time. That helps to speed the closing.
No matter when in the process it occurs, the underwriter must review and fact-check the buyer's job, bank accounts, and credit report as provided by the lender. You can't close the purchase without their say-so.
Closing might be delayed if a paper is missing from the loan file, such as a preliminary title report or a seller's condition of sale. Make sure all papers are in order if you want to speed up the sale.
Underwriting can be finished in a few days, or it could take up to a week.
Federally related mortgage loans often close within 30 days. However, special first-time home buyer programs, such as those involving help with the buyer's down payment, might take 35 to 50 days. These special loans may need the OK from two underwriting processes, not just one.
The biggest problems in home closing often occur after the file is sent to the underwriter. Although loan officers do tend to know the guidelines, which helps smooth the loan process, they can't always predict what an underwriter will say.
It can be tough for buyers, who have packed all their things and are waiting for movers, to wonder whether their loan will be approved. The last few days of closing can be very tense while they wait.
It often seems that large lenders cause more delays than mortgage brokers do. This could be because big banks follow their own plan of action when they approve loans.
In 2015, the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) were joined in the TILA RESPA Integrated Disclosure Rule, known as TRID for short. This rule is intended to give buyers clear and simple closing information, but it can sometimes cause delays.
Complying with federal guidelines such as TRID can also slow the closing process, because the groups that are working together have no pre-existing relationship.
Some other problems are common as well. A few things might delay the closing process, including:
- Low appraisal or a review that does not match the first appraisal
- More debt found on the buyer's credit report
- Mistakes noted in the buyer's credit report
- New liens or judgments filed against the buyer or seller upon title update
- Clouds on the title
- If the buyer or seller gets married or divorced
- Missing bank statements or financial documents
- Missing insurance details
- An expired loan or program commitment
- Big changes to the fees in the loan estimate
It's best if these problems are addressed before the loan goes to the underwriter.
The buyer's earnest money could be at risk if the loan isn't approved. If the purchase contract doesn't include a clause stating that the closing depends upon being approved for the loan, that could delay things as well. The same would apply if the home didn't appraise at a value high enough to cover the loan, and no clause about this were built into the contract.
Frequently Asked Questions (FAQs)
What is the average cost of closing on a home?
Closing costs range between 2% and 5% of the purchase price of a home on average. That means on a $250,000 home, you should expect roughly $5,000 and $12,500 in closing costs.
What do you do after closing on a home?
Once you and the seller sign off on the closing documents, the home is yours. Now it's time to change your locks, deep clean, and do any painting or pre-move-in projects you want to do. Be sure you update your address, set up your utilities, and have your HVAC systems serviced to be sure they're running well.
When is the best time to close on a home?
There are advantages to closing at the beginning or end of the month, so the right time depends on which benefits matter more to you. If you close at the beginning of the month, you'll probably get a smoother, faster close because your lender may be less busy. You'll also have a longer gap between closing and your first mortgage payment. On the other hand, closing late in the month will save you hundreds of dollars in prepaid interest.