Closing Day

What is Closing Day?

Closing Day, also known as Settlement Day, is the final step in a real estate transaction where ownership of a property is officially transferred from the seller to the buyer. On this day, all necessary documents are signed, funds are exchanged, and the deal is finalized. It's the culmination of weeks or months of negotiations, inspections, and financing arrangements. For a real estate investor, understanding Closing Day is crucial to ensure a smooth and successful property acquisition.

What Happens on Closing Day?

Closing Day typically involves several key actions and participants. The buyer, seller, their respective agents, and a closing agent (often an escrow officer or attorney) usually attend. The primary activities include:

• Signing Documents: Both buyer and seller sign numerous legal documents. The buyer signs the mortgage note, deed of trust (or mortgage), and various disclosures. The seller signs the deed, transferring ownership.
• Exchanging Funds: The buyer brings the remaining down payment and closing costs, usually via a wire transfer or certified check. The lender provides the loan funds. These funds are disbursed to the seller, real estate agents, and other service providers.
• Transferring Ownership: Once all documents are signed and funds are disbursed, the deed is recorded with the local county recorder's office. This officially transfers legal ownership to the buyer. The buyer then receives the keys to their new property.

Key Documents at Closing

Several important documents are reviewed and signed on Closing Day:

• Closing Disclosure (CD): This document details all the final costs of the transaction, including loan terms, fees, and credits. Buyers receive it at least three business days before closing to review and compare with their initial Loan Estimate.
• Promissory Note: The buyer's promise to repay the mortgage loan, outlining the terms of repayment, interest rate, and payment schedule.
• Deed: The legal document that transfers ownership of the property from the seller to the buyer.
• Deed of Trust/Mortgage: This document secures the promissory note, giving the lender the right to foreclose if the buyer defaults on the loan.
• Title Insurance Policy: Protects the buyer and lender against any future claims or defects in the property's title.

Tips for a Smooth Closing

To ensure a successful Closing Day, especially as a new investor:

1. Review Documents Carefully: Read the Closing Disclosure and all other documents thoroughly before and during the closing meeting. Ask questions if anything is unclear.
2. Arrange Funds in Advance: Ensure your down payment and closing costs are ready for wire transfer or certified check well before the closing date.
3. Conduct a Final Walk-Through: Perform a final inspection of the property a day or two before closing to confirm its condition hasn't changed and agreed-upon repairs have been completed.
4. Communicate with Your Team: Stay in close contact with your real estate agent, lender, and closing agent. They are there to guide you through the process.

Real-World Example

Imagine you're buying a single-family rental property for $300,000.

• Purchase Price: $300,000
• Loan Amount: $240,000 (80% LTV)
• Down Payment: $60,000
• Estimated Closing Costs: $9,000 (3% of purchase price, including lender fees, title insurance, recording fees, etc.)
• Total Funds Needed from Buyer at Closing: $60,000 (down payment) + $9,000 (closing costs) = $69,000.

On Closing Day, you would wire $69,000 to the escrow agent. The lender would wire $240,000. These funds would then be disbursed, and the deed recorded, making you the official owner.