A common question we get asked is what can I expect when getting ready to close on a new house? Closing, on average, takes 30 to 45 days from when your loan begins processing. And an hour or so on the day you sign the final paperwork.
There are two major nerve-racking situations when buying a home: getting pre-approved for a mortgage and closing on the house. Both give their fair share of anticipation and anxiety.
First, there’s a huge sigh of relief when you’re approved for a loan by a lender. But the waiting game begins after you make an offer on a house and select the lender for the actual loan. After this, the underwriting process starts and you count the days to signing the mortgage and at last getting the keys to your new home.
How long does it take to close on a home?
The question first time buyer’s ask us – “how long does it take to close on a home?” requires some background on the process.
On average, it takes 30-45 days from submitting a mortgage application to the actual closing day. However, with the novel cororonavirus and the need for electronic data gathering, lenders are reducing this time frame. According to NerdWallet, the 12-month period ending July 2019, the average was 43 days to close a loan on a purchase. How long the closing itself, reviewing and signing all of the loan documents take? If your loan settlement (closing), is happening with all parties gathered together, an hour or so can be expected.
What happens at a mortgage loan closing?
At closing, you should take time to carefully review and sign all of the legal documents required for the lender to issue a mortgage and transfer the ownership of the property to you. The loan proceeds equal to the purchase price will be distributed to the seller.
As a buyer, your closing paperwork typically includes:
- The promissory note, committing you (promissory = promise) to repay the loan.
- The mortgage, giving the lender the right to foreclose on the property if you don’t pay. (It might also be called the Deed of Trust or security instrument.)
- The escrow disclosure, detailing the charges that will be incorporated into your monthly payment for taxes and insurance.
- A right-to-cancel form, allowing you three business days to call off the whole deal.
Finally, expect a nice pile of disclosures, disclaimers and government-mandated documents requiring you to read and sign.
Documents you will need to bring to the closing
Be sure to ask your lender and agent what you’ll need to provide at closing. At a minimum, prepare to bring your personal identification, such as a driver’s license. The Closing Disclosure you received three days before closing – you need to compare it with the documents you’ll sign. Finally, a cashier’s check or wire transfer receipt for the funds you will need to close.
What you’ll pay at closing
This information is found on the Loan Estimate when you apply for a mortgage and on the Closing Disclosure that you should receive three days before closing. Again, be prepared to pay at least:
- Lender origination fee and third-party fees not already paid
- Property taxes prorated portion
- Interest that will accrue up to your first mortgage payment
- An amount applied to the homeowner’s insurance coverage
- Any premiums for title insurance
- If applicable – a portion of HOA fees if applicable to your property
What you should NOT do when preparing to close on a mortgage
Okay, so you now can get a feel for what you will expect at closing when you buy your home. Let’s assume for a moment that you have a great rate, favorable terms that fit your mortgage goals, the lender is satisfied with all documentation and the only thing left to do is wait for closing.
Believe it or not, a lot of people make a simple mistake that jeopardizes the entire process they spent months preparing for!
Here is a list of things you should NEVER do in the time between your financing complete date and your closing date – the day the lender actually advances the funds. This list is inspired by real life situations.
As a general rule, never make changes to your financial situation without first consulting your lender. We also recommend keeping in touch with your financial planner who can also help with advice. Changes to your financial situation before your mortgage closes could actually cause your mortgage to be declined.
Never EVER quit your job
This might sound obvious, but if you leave your job, this change in employment status makes its way to the lender. From there you will be required to support your mortgage application with your new employment details. Even if you found a new job that pays twice as much, there still might be a probationary period and the lender might not feel comfortable with proceeding.
Do not reduce your income
This goes without saying, do not change status at your existing employer. A raise is fine, but a drop from full to part time status will not help. The reduced income will change your debt services ratios on your application and you might not qualify.
Never apply for a new credit card
We all get excited for a new house, especially if this is your first, however it’s a bad time to go shopping on credit or take out new credit cards. So if you find yourself eyeing that new iPhone 12 PRO and they want you to finance your purchase right now… don’t. By applying taking out new credit, you will jeopardize your mortgage.
Do not change existing credit
In the same way that it’s not a good idea to take on a new credit card, it’s best not to close any existing credit either. Your lender has agreed to lend you money for a mortgage based on the current financial situation and this includes your credit profile. Lenders and insurers have a minimum credit profile required to lend you money and if active accounts are closed, you could fall into an unacceptable credit situation.
Do not co-sign for loans for anyone else
You may have the best intentions, but if you co-sign for any type of debt, you are responsible for the full payments incurred on that loan if there is a failure to pay. This extra debt is added to your expenses and may throw your ratios out of line.
Never stop paying your bills
Although this is still good advice for people purchasing homes, it is often an issue in a refi situation. If waiting on proceeds from a refinance in order to consolidate debt, you must continue making your payments as scheduled. Failing to do this will reflect on your credit bureau and it could impact your ability to get the mortgage. Just continue making all your payments until the refinance has gone through and your balances have been brought to zero.
Do not spend your closing costs
Typically the lender wants you to have 1.5% saved up to cover closing. The money is used to cover the expense of closing your mortgage.
Do not change your real estate purchase contract
Often times when you are purchasing a property there will be items from an inspection causing you to make changes to the contract. Although not deal changer, it can make a difference for financing. So if financing is complete, it is best practice to check with your Lender before making any changes to the purchase contract.
Do not put your property up for sale
If you refinanced your property and your goal is to eventually sell it, wait until the funds have been advanced before listing it. Why would any lender want to lend you money on a mortgage when you are clearly going to sell it right away?
Never accept mortgage advice from unlicensed individuals
Although this point is least likely to impact the approval of your mortgage status, it is frustrating when people give unsolicited advice about what you should do with your mortgage, making you second guess yourself. If you have any questions at all, call your licensed mortgage professional and realtor. Placing value on unsolicited mortgage advice from non-licensed people doesn’t make a lot of sense and might lead you to make some of the mistakes we just reviewed.