What Happens at a Real Estate Closing

 In Common Questions, First-Time Home Buyers

Unless you buy and sell real estate all the time, you are probably a little unclear about what happens at the closing.  Different states have different rules, but here’s how things work in Colorado.

Transferring Ownership

At a real estate closing in Colorado, the title to the property, known as the Warranty Deed, is transferred from the seller to the buyer.  The title to a property is the same as the title to a car – it describes the property, and it states who owns it. In exchange for the transfer of the title, the money to purchase the property is transferred from the buyer to the seller.

Usually, the buyer needs to get a mortgage to buy a house, and the buyer finalizes the mortgage documents at the closing.  

Real Estate vs Loan Closing

There are actually two closings: the real estate closing, and the loan closing.  Although they are separate closings, they happen at the same time in the same room, and most buyers and sellers never even realize that two closings are occurring.

The real estate closing involves the transfer of the deed and the finalization of the contract between the buyer and the seller, and the loan closing deals with all the paperwork that details the terms of the mortgage.  

The real estate closing only takes a few minutes because there aren’t many papers to sign.  The loan closing usually takes about 30 minutes or so because there are many more papers to sign.  Together, the entire process takes about an hour.

Documentation

The most important documents for the loan closing are the Note and the Deed of Trust.  The note states the terms of the loan (the amount of the loan, the interest rate, how long the buyer has to pay back the loan, etc.).  The Deed of Trust is the document that says the money being borrowed is for the purchase of the property being transferred.

Briefly, here are the three main documents at a closing:

  • Warranty Deed – gives a description of the property and tells who owns it.
  • Note – gives the details of the loan that must be paid back.
  • Deed of Trust – states that the Note is for the purchase of the property, and also states that the lender has a legal claim to the property until the Note is paid in full.

Of course, there are many more documents that need to be signed, but these are simply disclosures telling the buyer and the seller exactly what they are getting into, and ensuring that once the closing if finished, the house has legally been transferred from the seller to the buyer.

Title Company

One question that comes up often is, “How does the money get transferred?”

Most closings in Colorado are conducted by a title company, and one of their functions is to collect the money and pay everyone who needs to be paid.  Think of the title company as being a pot where all the money goes. Once all the money is in the pot, the title company takes the money out of the pot and pays everyone.  

The money that goes into the pot includes:

  • Earnest money (part of the down payment, and paid by the buyer when they originally sign the contract to buy the house)
  • The loan (comes from the lender)
  • The rest of the down payment (the cost of the house, less the loan amount and the earnest money)
  • The closing costs (all the fees related to the sale of the house and the loan).  The seller pays some of these and the buyer pays some.

The money that comes out of the pot includes:

  • The real estate agent commissions – these get paid to the real estate agents.
  • The closing costs – these get paid to the county for property taxes, the insurance company for homeowner’s insurance, the appraiser, the lender, and anyone else who was involved in the transaction.
  • The payoff of any existing mortgages that the seller has on the property.
  • The money that goes to the seller for selling the house.

Once everyone has been paid, the closing is finished, the keys are transferred from the seller to the buyer, and everyone goes home.  Again, the whole thing only takes about an hour.

At a Real Estate Closing

We attend all of our closings, and we always give our clients the final paperwork at least three days before the closing.  We explain everything to our buyers before the closing so they won’t have any questions at the closing. Feel free to contact us if you have any questions.

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