When you and the seller are ready to exchange a deed for cash, it’s time to head to the closing. If it’s your first purchase, you might find the whole closing process to be a bit daunting.

It doesn’t have to be. From the buyer’s perspective, the closing can be generally broken into three pieces:

  1. Review and signing of loan documents. In the first phase of the closing, buyers must review and sign all the loan documents provided by the lender. There may be seven to twenty documents or more, including the actual mortgage, note, affidavits, truth-in-lending statements, estimate of closing costs, and the escrow statement letter that outlines how much will be paid in to the real estate tax and insurance escrows.

  2. Exchange of documents between buyer and seller and title (or escrow) company. The second phase of the closing deals with the relationship between the buyer, the seller and the title or escrow company. There is an exchange of documents that must be signed by the buyer and the seller, and then other documents that require the additional signature of the title company.

    Depending on local customs, the seller will provide certain documents for the buyer to inspect to verify that they are correct, including the deed, bill of sale, and affidavit of title. The buyer will also need to look at any documents that may have been required in the contract, including paid water bills, certificates of compliance with laws pertaining to smoke-detection equipment, lead paint, termite or radon inspection (these items will vary from state to state, and even county to county).

    Condo and coop owners will also have to provide an assessment full-payment certificate and a building insurance certificate. Sellers will also typically provide a property survey (except for condos and co-ops).

    Other documents that need to be signed include the closing statement (HUD-1) and title documents, and all of the lender disclosures.

  3. Disbursement of funds. Once all the documents have been signed, dated, and notarized, the title company can proceed with the disbursement of funds. The title company will take the money from the buyer, and cut checks to the seller, the seller’s lender (if applicable), the brokers, the title company, and the attorneys.

    Since everyone usually gets paid out of the closing proceeds, it’s easy to understand why the title company doesn’t accept personal checks, even for very small amounts. Personal checks take time to clear, and if a buyer wrote a bad check, the title company would get stuck.

    So when you’re getting your cash together for a closing, remember that title companies accept only cashier’s or certified checks, or a wire transfer, because that’s like accepting cash.

    Almost all first-time buyers will have some sort of financing involved with their purchase simply because it’s expensive to buy a home, and most first-time buyers don’t have that kind of cash stuffed inside their mattresses.

    But if there’s no lender, or if the seller is acting as the lender by providing seller financing, the buyer and seller can sit down together (with their attorneys) and exchange and sign documents. Or, they can have the title company act as intermediary between seller and buyer in an escrow closing. The closing may take less time (most closings that involve financing generally take between thirty minutes and two hours) and will certainly have fewer steps overall.

    One of the problems with the closing is that buyers are often overwhelmed by the sheer volume of documents they must read and comprehend in a short period of time. Rarely is there enough time to read all of the documents they’re signing.

    The move toward electronic closings may help. Today, some title companies have agreements with technology companies that allows them to put closing documents on a secured website that only a limited number of people have access to, like the buyers and their attorney.

    Because you can access this site 24 hours a day, 7 days a week, you can take the time to read the documents ahead of time and then ask your title company or escrow officer to explain any concepts you don’t understand.

    In the next few years, as electronic signatures become more popular, the whole concept of the closing, as we think about it today, will change. While you can already sign your documents ahead of time and overnight them to the title or escrow officer, the next step will be to sit at your computer, at home or even at the office, and in real time electronically sign your documents.

    You’ll just have to hope your computer doesn’t “freeze” right in the middle of the transaction.

Published: May 5, 2003