What happens at a real estate closing, step by step?

At a real estate closing, the buyer signs the loan and the seller signs the deed, the money from the buyer and the lender is collected by a neutral settlement agent, that agent pays the seller and everyone else owed money from the sale, and the deed and the lien are recorded in the county records. The signing is the last hour of a process that starts the day the offer is accepted.

This article covers a residential purchase financed with a mortgage in the United States. It is general information, not legal advice: the federal disclosure rules described here apply nationwide, while the contract forms, the person who conducts the closing, the documents used and the order of the final steps change from one state to the next.

Two things are called "closing". The closing process is the whole period between the signed contract and the handover of keys. The closing itself, also called settlement, is the appointment where documents are signed and money moves.

What are the steps of a real estate closing, from accepted offer to keys?

A financed home purchase in the United States moves through a fixed sequence: signed contract, earnest money, loan application, inspection, appraisal, title work, loan approval, Closing Disclosure, final walk-through, wiring of funds, signing, and then funding, recording and disbursement, which together release the keys. The inspection, the appraisal and the title search usually overlap, and the loan file is worked on throughout.

The calendar below places each step on an illustrative timeline. It assumes an offer accepted on a Monday, called Day 0, a conventional loan, a lender open Monday to Friday, and a contract with inspection and financing contingencies. Real contracts set their own deadlines.

How long each of these phases takes in practice, and what stretches them, is the subject of a separate article on closing timelines.

What happens right after the offer is accepted?

Once the offer is accepted, the purchase contract becomes the script for the whole closing: it fixes the price, the closing date, the deadlines for each contingency and the amount of earnest money the buyer must deposit. Everything the lender, the title company and the agents do afterwards is measured against that document.

Earnest money is a deposit that shows the buyer intends to perform. It is delivered within the number of days the contract states, to the holder the contract names, typically the settlement agent, an escrow company or a broker, and it is kept in an escrow or trust account until closing. At closing it is credited to the buyer, so it reduces the amount the buyer still has to bring. If the purchase fails, the contract decides who receives it: a buyer who withdraws within a contingency normally recovers the deposit, while a buyer who defaults outside one may lose it.

The buyer applies for the loan in the same days. Under Regulation Z, the lender must deliver or mail a Loan Estimate no later than the third business day after it receives the application. The Loan Estimate sets out the proposed interest rate, the monthly payment and an estimate of the closing costs, and it is the document the buyer will compare with the Closing Disclosure several weeks later.

What do the inspection, the appraisal and the title search check?

The inspection checks the physical condition of the property for the buyer, the appraisal checks its value for the lender, and the title search checks who legally owns it and what claims are attached to it. Each can change the deal.

The inspection is the buyer's own diligence. If the contract has an inspection contingency, the buyer may, within its deadline, ask for repairs, negotiate a credit or a lower price, or withdraw. An agreed credit has to reach the lender and the settlement agent, because it changes the closing figures.

The appraisal belongs to the lender's file, although the buyer normally pays for it. The lender will not lend against a value the appraisal does not support. When the appraised value comes in below the contract price, the parties usually have four ways forward: the seller lowers the price, the buyer adds cash, the two meet in between, or the buyer uses a financing or appraisal contingency to leave. Under Regulation B, the lender must give the applicant a copy of the appraisal promptly upon completion, or three business days before consummation, whichever is earlier.

The title search is the settlement agent's work. A title examiner reads the public records for the chain of ownership and for anything recorded against the property, such as an existing mortgage, a tax lien, a judgment or an easement. The result is a title commitment, which lists the requirements to be met before closing, such as paying off the seller's loan, and the exceptions the policy will not cover.

Two title insurance policies may come out of that work. According to the Consumer Financial Protection Bureau, a lender's policy protects the amount the lender lends and most lenders require the borrower to buy one, while an owner's policy protects the homeowner against a claim that dates from before the purchase and is optional.

How does a loan get from application to clear to close?

A loan reaches clear to close when the lender's underwriter has verified the borrower's income, assets and credit, accepted the appraisal and the title commitment, and signed off every condition attached to the approval. Clear to close is the lender's statement that nothing remains open on its side and that closing documents can be prepared.

A loan processor assembles the file: pay stubs, tax returns, bank statements, the contract, the appraisal. The underwriter reviews it and usually issues a conditional approval, which is an approval subject to a list of items. Typical conditions are an explanation of a large deposit, a more recent statement, proof that a debt was paid, and evidence of homeowners insurance.

A condition answered in a day keeps the calendar intact; one answered in a week moves the signing. Lenders also commonly re-verify employment and credit shortly before closing, so a new car loan, a change of job or a large unexplained transfer between approval and signing can reopen a file that was already approved.

The Consumer Financial Protection Bureau notes that the borrower must show proof of homeowners insurance before the lender funds the loan, so the policy has to be bound, with the lender named on it, before closing day.

What is the Closing Disclosure and how does the three-business-day rule work?

The Closing Disclosure is the federal form that states the final terms of the loan and itemises every closing cost, and the borrower must receive it no later than three business days before consummation, the moment the borrower becomes contractually obligated on the loan. The rule comes from Regulation Z, the regulation that implements the Truth in Lending Act, and the Consumer Financial Protection Bureau describes the period as time to compare the final terms and costs with those estimated in the Loan Estimate.

The counting is where mistakes are made, because "business day" has a special meaning for this deadline. For the Closing Disclosure, Regulation Z counts every calendar day except Sundays and the federal legal public holidays. Saturday counts, whether or not the lender is open. A second rule applies when the form is not handed over in person: the borrower is considered to have received it three business days after it is delivered or placed in the mail, unless there is evidence of earlier receipt.

The table applies both rules to the illustrative calendar, where the lender issues the Closing Disclosure on Thursday, Day 38.

A mailed form with no proof of receipt moves the signing by three days, which is why most borrowers are asked to acknowledge the form electronically.

Not every later change restarts the clock. Regulation Z names three changes that require a corrected Closing Disclosure and a new three-business-day period: the annual percentage rate becomes inaccurate beyond the tolerance the regulation defines, the loan product changes, or a prepayment penalty is added. Other changes, such as a corrected fee or a seller credit agreed at the walk-through, require a corrected form at or before consummation but no new waiting period. The regulation also lets a borrower waive the period in a bona fide personal financial emergency, by a dated written statement that describes the emergency and is signed by every borrower, never on a printed form.

The seller gets a disclosure too. Regulation Z makes the settlement agent responsible for providing the seller's version, no later than the day of consummation.

The buyer uses the three days to check the loan amount, the interest rate, the monthly payment, the cash to close and the spelling of every name against the Loan Estimate and the contract, and to raise any difference with the lender or the settlement agent before the appointment.

What are the final walk-through and the wire for?

The final walk-through confirms that the property is in the condition the contract requires, and the wire delivers the buyer's cash to close to the settlement agent before the signing.

The walk-through is not a second inspection. The buyer checks that agreed repairs were made, that the fixtures and appliances included in the sale are still there, and that nothing was damaged in the move. Its timing is set by the contract, usually shortly before the closing appointment. A problem found here is normally solved in one of three ways: the seller fixes it before signing, the parties agree a credit, or they sign a written agreement under which the settlement agent keeps back part of the seller's proceeds until the work is done, where the lender permits it.

The cash to close is the figure on the Closing Disclosure: the down payment plus the buyer's closing costs, less the earnest money already deposited and any credits. In a worked example with a price of $420,000, a 20% down payment of $84,000, buyer closing costs of $9,600 and earnest money of $8,400 already held, the buyer brings $85,200. Together with the $336,000 loan and the $8,400 deposit, the settlement agent then holds $429,600, which is the price plus the buyer's costs. What makes up those costs line by line is covered in a separate article on closing costs.

Settlement agents generally need the money as collected funds before they can disburse, which in practice means a wire, or in some offices a cashier's check within a set limit.

What documents are signed at the closing table?

Four documents carry a financed purchase: the promissory note, the mortgage or deed of trust, the deed and the Closing Disclosure. The buyer signs the first two and the closing figures, the seller signs the deed, and a stack of supporting forms goes with them.

The note is the debt: amount, rate, payment, maturity. The security instrument is what ties that debt to the house, and the Consumer Financial Protection Bureau summarises it as the borrower's agreement that the lender may foreclose if the loan is not repaid. Whether the security instrument is called a mortgage or a deed of trust depends on the state; a deed of trust adds a third party, a trustee, who holds a form of title for the lender's benefit until the loan is paid off.

The deed is a different document from the deed of trust, despite the name. The deed moves ownership from seller to buyer. The type of deed customary for a sale, and how far the seller stands behind the title under it, differ by state.

Around these four come the supporting papers: an initial escrow account statement when the lender collects property taxes and insurance with the monthly payment, affidavits in which the parties confirm their identity and the absence of undisclosed liens, tax forms and the lender's compliance forms. Some documents, including the security instrument, must be notarised, which is why a notary is present or the closing is conducted by someone who holds a commission.

Who attends a real estate closing?

A closing is attended by the buyer and the person conducting it, and, depending on the state and the local custom, by the seller, the real estate agents, a notary, the buyer's or seller's attorney and sometimes the loan officer. The only people who must take part are those who sign: the buyer signs the loan documents and the seller signs the deed.

The person in charge is the settlement agent. The Consumer Financial Protection Bureau notes that this is often a title or escrow company in most western states and a closing attorney in some eastern states. That person explains each document, witnesses or notarises the signatures, collects the money and is responsible for paying it out according to the contract and the lender's instructions. What each of these professionals does before, during and after the appointment is the subject of separate articles on the closing attorney, the settlement agent and the title company.

The seller's presence is the part that varies most. In many closings the seller signs the deed and the seller's documents in advance, and never meets the buyer. A party who cannot attend can usually sign through a mobile notary or a person holding a power of attorney, with the prior agreement of the lender and the title company. Remote online notarisation is available for some closings, depending on state law and on what the lender and the county recorder accept.

What is the difference between a table closing and an escrow closing?

In a table closing, the parties sign at one appointment and the transaction is funded and completed around that meeting; in an escrow closing, each side signs separately with an escrow officer, and the transaction closes later, when every condition in the escrow instructions has been met and the deed is recorded.

The practical consequence for a buyer is the gap between signing and owning. In an escrow closing, signing is a step on the way: the lender reviews the signed package, releases the loan funds, the escrow officer records the deed, and only then is the buyer the owner.

Practice varies within states and between counties, some states require an attorney to conduct or supervise the closing, and whether the loan may be funded at the table or only after the lender's review depends on state law. That last question, known as wet and dry funding, has its own article.

What happens after everyone signs?

After the signatures, four things happen in a fixed logic: the lender funds the loan, the settlement agent records the deed and the security instrument, the settlement agent disburses the money, and the buyer takes possession.

Funding is the lender's release of the loan money to the settlement agent. Before it does so, the lender checks the signed package: the note, the security instrument, the identification, the insurance. A missing signature or an incorrect date at this point can keep a signed closing from funding the same day.

Recording makes the transfer public. The settlement agent sends the deed and the mortgage or deed of trust to the county recording office, on paper or electronically, and pays the recording fees and any transfer taxes. Recording puts the world on notice that the buyer owns the property and that the lender holds a lien on it.

Disbursement is the payment of everyone owed money from the sale. The settlement agent pays off the seller's existing loan, pays the brokers' commissions, the taxes, the title and recording charges and the other items listed on the closing figures, and sends the remainder to the seller as net proceeds. The order in which those payments are made and why is covered in the article on who gets paid first at a closing.

Possession follows the contract. Most contracts give the buyer possession at closing or at recording. Some give the seller a short period of occupancy after closing, under a written agreement.

What can stop a closing on the day?

A closing stops on the day when the money, a valid signature, a clean title, matching figures, an unchanged loan file or a property in the agreed condition is missing. Most are found in the weeks before the appointment; the ones that surface on the day are late discoveries.

The title row exists because the title company updates its search just before closing, to catch anything recorded since the commitment; a lien filed in the meantime has to be dealt with before the company will insure. In the figures row, a changed fee does not by itself restart the three-business-day period.

A missed closing date is also a contract question. Whether the buyer or the seller is in default, whether the date extends automatically, and what happens to the earnest money depend on the wording of the purchase agreement and on state law. When a delay looks likely, the usual tool is a written extension signed by both sides before the original date passes, not after.