PREPARATION FOR CLOSING
What is it?
The Preparation for Closing phase of the closing process is the pre-closing period when any loose ends of the transaction are tied up and final preparations are made for the closing itself, including setting the date and time for the closing. It lasts as long as is necessary to get everything tee’d-up for the closing, so that there’s nothing left to do but show up on closing Day, sign the loan package and receive the Deed and transfer documents from the Seller.
This phase involves heavy participation from all of the main players in your transaction — you, the Seller, the attorneys for each of you, the lender, the title company, and the real estate agents — with everyone having their own specific tasks and to-do items to push through to get to the closing table.
Why is it important?
Preparation for Closing is essentially a catch-all period when everything still left to be done in order to make it to the closing table, is completed. This might include everything from confirming that the Seller has completed any agreed-upon inspection repairs and the property has passed the municipal fire safety inspection, obtaining final loan approval from the lender, and finalizing the settlement statement for the transaction (so you know how much money you need to bring to the closing!)…to setting up utilities accounts, solidifying moving plans, and performing your final walk-through of the property. By the end of this pre-closing phase, your transaction should be ready to close.
How does it work?
Once any title issues have been cleared, you’ll enter “Preparation for Closing” mode. There are standard pre-closing task items that are common to all transactions, as well as miscellaneous pre-closing items that are specific to the facts and circumstances of your particular deal.
The standard pre-closing task items are described below. Note that, while these steps tend to at least loosely follow the sequence in which they’re listed, their order can vary significantly from transaction to transaction:
STEP 1: Obtain a Status Update from Your Lender
By the time the Title phase of the closing process is completed and you’re moving into Preparation for Closing, you most likely will have already received a mortgage commitment from your lender and will be in the process of clearing any remaining conditions listed in the commitment in order to get final loan approval and clearance to close. This is a good time to regroup and make sure you’re on the same page as your lender about the path forward to closing.
Specifically, you should get confirmation that the lender is waiting on any additional information or documentation from you (and if not, what exactly those items are) and that you’re on track to close on the closing date set in the Contract (and if not, then when).
STEP 2: Confirm the Seller’s Completion of Repairs and Closure of Open Permits
During Inspection negotiations, you and the Seller will have reached an agreement as to repairs that the Seller must complete prior to the closing. It is during the “Preparation for Closing” phase that you’ll circle back with the Seller on these items to confirm that the repairs have in fact been completed. Confirmation typically takes the form of the Seller providing you with copies of paid receipts for the work from the contractors that performed it. (You will physically verify the repairs during your final walk-through.)
In addition to confirming repairs, this is the time when you would seek verification from the Seller that any open permits for work performed at the property have been closed. Typically, your Contract with the Seller will have required that the Seller close any open permits before the closing. Your attorney and/or your real estate agent will have obtained the permit history of the property from the municipality at some point prior to this, and if the permit history showed any open permits, your attorney would have advised the Seller’s attorney of them so that the Seller could work on getting the permits closed before the closing. Once they’re closed, the Seller should provide you with copies of the final permit approvals, or verification of final approvals can be obtained from the municipality by your attorney.
STEP 3: Confirm that the Property Passed the Municipal Fire Safety Inspection
Whenever a home is re-sold in New Jersey, state law requires that the property pass a limited fire safety inspection conducted by a municipal inspector. That fire safety inspection checks for the proper functioning and placement of smoke detectors, carbon monoxide detectors and fire extinguishers in the home. If the property passes the inspection, the municipality will issue a certificate reflecting same, often referred to as a “Smoke Detector and Carbon Monoxide Detector Compliance Certificate,” “Fire Prevention Certificate,” or “smoke cert” for short.
On top of these baseline fire safety requirements, many municipalities add their own additional requirements that properties must meet in order to proceed with a closing. These municipalities perform a more robust inspection of each property that includes checking for not only the state-mandated fire safety requirements but also other basic safety issues (like unpermitted work, missing handrails, working sump pumps, etc.), in order to issue what is most often referred to as a “Certificate of Continued Occupancy” (CCO).
Regardless of what your municipality calls the municipal certificate required for the resale of a property, your Contract with the Seller will provide that the Seller is responsible for obtaining the certificate prior to the closing. The Seller should provide you with a copy of the certificate once he’s received it from the municipality.
STEP 4: Finalize Moving Plans to the Extent Possible
New Jersey’s soft closing dates can make solidifying moving plans difficult for buyers and sellers alike. While lenders try to close on the closing date set in the Contract, your closing date and time won’t get officially scheduled and make it onto the lender’s closing calendar until the lender has given you “final loan approval,” a.k.a., clearance to close, which comes after you’ve cleared all remaining conditions in your mortgage commitment and the lender’s underwriting department is satisfied with your loan file.
If you’re planning to move into your new home soon after the closing, sometimes the moving company moving will need a firm moving date before you can give them one. This is why Step 1 above — checking in with your lender to see if your loan is on track to close on the Contract closing date — is so important at the start of the Preparation for Closing phase. It establishes an anticipated timeline for the closing and the many planning decisions that happen in the days (or sometimes weeks) leading up to it.
To best navigate the tension between firm moving plans and the soft closing date, try to give yourself leeway with your moving date. To the extent possible, build in a margin of error into the timing of your move, in case the closing date gets pushed by a day or a few days. (The vast majority of transactions will close within a week of the original closing date, and many close on the actual closing date listed in the Contract.)
Of course, if your mortgage approval process is lagging or getting complicated and you have numerous remaining conditions to clear, or there are unresolved issues between you and the Seller, don’t make moving plans until you have a clearer sense of when you’ll be able to close. And even then, try to avoid moving on that anticipated closing date, because delays can still happen, whether on your part, the lender’s part, or the Seller’s part. (You’re playing with fire if you schedule your move into your new house for the afternoon of the closing date set in the Contract. There’s no guarantee that you’ll be able to close in the morning, let alone on that specific date.) If you’re planning on having minor or major work done at the property before you move in, this time period between closing and move-in functions as a good buffer for the closing date.
STEP 5: Obtain “Final Loan Approval” and “Clearance to Close” from the Lender; Confirm a Closing Date and Time
As discussed in the Mortgage phase, once you’ve cleared all remaining conditions in your Mortgage Commitment, your lender will give you “final loan approval” and “clearance to close.”
Think of “final loan approval” or “clearance to close” as the magic words in your home-buying journey. They’re the lender’s official green light to proceed with the actual closing, so they mark the beginning of the final homestretch to the closing table. It is at this point that the lender will officially add your closing to their calendar.
While the lender will ask you what day and time you’d like to close, your preferred date will ultimately be subject to federal regulations governing the timing of closings and the lender’s own internal policies and procedures. For example, a lender might require that closings be scheduled at least one week out from the date of final loan approval, per internal policy, while others have no such constraint. The lender will reach out to your attorney to confirm that your preferred closing date and time work for your attorney, the Seller, the Seller’s attorney, and the settlement agent. If not, a mutually acceptable date and time will be determined.
Also note that, as long as your loan application process has been going smoothly and as expected, and your loan processor has confirmed, at Step 1 above, that your loan is on track to close on the closing date named in the Contract, your chances are very good that you’ll actually close on that date (barring anything unexpected coming up on the Seller’s side).
STEP 6: Receive the Initial Closing Disclosure from the Lender
Once your loan has obtained clearance to close and the closing has been calendared with the lender, your loan file gets sent to the lender’s own closing department, where it’s assigned to an individual “Closer” who’ll take the loan down the final homestretch and through the closing.
The assigned closer’s first order of business is to prepare an initial version of the closing Disclosure. The Closing Disclosure is the settlement statement for your purchase transaction; it’s a detailed accounting of all your transaction costs, loan costs and closing costs, plus any credits you’re receiving from the Seller or lender, and tell you exactly how much money you’ll need to bring to the closing in order to complete your purchase of the property — otherwise known as your “Cash-to-Close”.
Per federal regulations, the lender must provide you with a copy of the initial Closing Disclosure — and you must also acknowledge your receipt of it, typically by signing it — at least three (3) business days before the closing. If this doesn’t happen by the third day before the date you’re scheduled to close, that closing date will have to get pushed back accordingly to comply with the federal rules. So you should be on the lookout for the initial Closing Disclosure as you approach the third business day before the scheduled date for the closing.
(Note that Saturdays count as business days for the purposes of calculating the three-day rule, so if the Closing Disclosure is issued and acknowledged on a Thursday, the soonest you can close is Monday of the following week.)
WHAT’S IN A CLOSING DISCLOSURE?
The Closing Disclosure is an itemized accounting of all the charges, costs and fees imposed on the buyer and the seller in a home purchase transaction. It also tabulates the amount the buyer needs to bring to the closing to complete the transaction.
Confused about what, exactly, your closing costs will be?
CHECK THIS OUT: What Are My Closing Costs as a Buyer?
STEP 7: Schedule the Transfer of Utility Accounts to Your Name
With the lender’s issuance of the initial Closing Disclosure, you’re likely just a few days away from the closing. This is a good time to arrange for private utilities such as electricity, water and natural gas to be switched over to your name as of the closing date. We say “private” utilities because public utility services (utilities owned or operated by the municipality) follow the property, rather than the owner or tenant, and therefore simply continue after the change of ownership to you. Private utilities, on the other hand — such as PSEG or Elizabethtown Gas — provide services to your home based on a private contract between you and that provider; the service and the obligation to pay for the service do not follow the property but, rather, follow you, the contracting party, instead.
Many private utilities allow you to schedule the start of service via their website. You should set the start of service for the closing date. However, if the closing date then gets delayed for some reason, you’ll need to similarly reschedule the start of service with the utilities.
Finally, note that there’s a difference between the Seller closing a utility account and the account being transferred to a new owner. Closing an account typically means shutting off service to the property entirely. The Seller would generally be responsible for the cost of restoring such service, but it’s best to avoid this situation altogether because it can take days to get service restored, and the closing itself could be delayed accordingly (remember, you won’t be able to complete a thorough, pre-closing walk-through of the property if there’s no electricity, gas or water service, and you don’t want to risk pipes freezing in the dead of winter). So a best practice would be to enlist your real estate agent to help coordinate the transfer of private utility accounts between the Seller and you and avoid the shut off any services.
QUICK TIP: When do I sign the loan documents? In addition to preparing the Closing Disclosure, the lender’s assigned closer is also responsible for preparing the loan package for your closing. The loan package is the collection of loan documents that you’ll need to sign at the closing in order to close the loan. You typically won’t see the loan package until the closing itself, when you’ll be taken through it document by document, signing it where required.
STEP 8: Receive the Finalized Closing Disclosure and Your “Cash-to-Close” Number
After the lender’s closer issues the initial Closing Disclosure to you and you acknowledge your receipt of it, the Closing Disclosure undergoes a process of review and finalization as between the lender, the settlement agent (title company) and your attorney, until a final, approved version is reached. That final version will tell you exactly how much money you’ll need to bring to the closing in the form of a bank check (or a wire transfer in advance of the closing, if permitted by the settlement agent). That number is known as your “Cash-to-Close,” and consists of your remaining down payment, loan costs and closing costs, minus any credits or adjustments between you and the Seller for items such as inspection credits, property taxes and municipal sewer charges.
Since the finalized Closing Disclosure is often differs from the initial Closing Disclosure that you acknowledged, don’t go to the bank for your bank check (or wire funds to the settlement agent) until your attorney gives you the green light to do so. Your attorney will forward a copy of the finalized Closing Disclosure to you when it’s ready and let you know what your Cash-to-Close number is, along with giving you explicit directions for obtaining your bank check or wiring the funds.
STEP 9: Get Your Bank Check (or Wire Your Cash-to-Close Funds) for the Closing
Since the finalize Closing Disclosure often changes following the initial version that you acknowledged, don’t go to the bank for your bank check (or wire funds to the settlement agent) until your attorney gives you the green light to do so. Once the Closing Disclosure has been finalized, your attorney will forward a copy of it to you and let you know what your Cash-to-Close number is and give you explicit directions for obtaining your bank check or wiring the funds.
You cannot bring your Cash-to-Close funds to the closing in the form of a personal check. Instead, your cash-to-close must be in the form of certified funds, which means a bank check or a wire transfer into escrow in advance of the closing.
When your attorney provides you with the finalized Closing Disclosure and your Cash-to-Close amount, he or she will also provide you with detailed instructions as to whether you should obtain a bank check or wire your funds to the settlement agent. how to bring those funds to the closing. There are two primary forms of payment: bank check or you should go to the bank to obtain a bank check in that amount. Your attorney will give you instructions as to the payee name for that check. Note that while ideally the Closing Disclosure will be finalized at least 24-48 hours before the scheduled closing, it is not uncommon for the Closing Disclosure to be finalized the evening before a morning closing. In that case, buyers make their trip to the bank right before heading to the closing.
QUICK TIP: Can I wire my Cash-to-Close money for the Closing? Some buyers prefer to wire their closing funds to the settlement agent before the closing, rather than bringing a bank check to the closing itself. However, every settlement agent differs in its policies concerning whether wire transfers are acceptable. Some don’t accept wires at all, while others freely allow them or even require them. This variation in policies is a result of companies trying to navigate the risk of wire fraud, which has increased exponentially in the last few years. Regardless, your attorney will let you know ahead of time whether you’ll have to bring a bank check to the closing or wire your funds ahead of time.
STEP 10: Perform Your Final Walk-Through
One of the last steps of the pre-closing period is the final walk-through of the property. Because you want complete access to all parts of the property for the walk-through, the walk-through can only be performed after the Seller has fully vacated the property and removed all personal belongings and effects. The Contract will stipulate that the Seller must deliver the property to you at the closing empty and free of all debris and personal property, and in “broom-clean” condition, so the home should not only be empty, but also as clean as if someone had swept it.
The walk-through is typically performed either the night before the closing or the day of the closing, not just because sellers are often not moved out until the day before the closing, but also because you, as a buyer, want to limit the amount of time that passes between the walk-through (your last glimpse of the property that you’re buying) and the closing (when you take ownership). You’ll schedule the walk-through with your real estate agent, and then perform the walk-through in the company of your agent as well.
It’s important to understand the intent and scope of the walk-through. Its purpose is to make sure that the property is in the same condition as it was during Inspections (minus ordinary ‘wear and tear’ and subject to any agreement between the parties as to inspection issues). The walk-through is not a second bite at the Inspections apple — it’s not a second chance to inspect the property and raise new issues that could’ve been raised during the Inspections contingency.
Your agent will typically take the lead on the walk-through, as he or she will have experience and a plan for doing so. In addition to generally confirming that the property is empty and in the same condition as it was during Inspections, you and your agent should do things such as:
- Turn on lights, plumbing fixtures, HVAC systems, and appliances to ensure that they’re working;
- Confirm the completion of any agreed upon repairs made by the Seller (you should bring a copy of the paid receipts for the work to assist you);
- Look at areas of the property that had previously been blocked from view at the time of Inspections, such as garages or attics;
- Confirm the location of additional keys and garage door openers;
- If there are any issues identified during the walk-through, you should notify your attorney of them immediately.
STEP 11: Resolve Any Walk-Through Issues With the Seller
If there are walk-through issues, they need to get resolved with the Seller before the closing can be completed (i.e., before you take ownership of the property). This is why it’s important that you bring any walk-through issues to your attorney’s attention as soon as possible; you want to get the issues resolved in time to avoid having to delay the closing.
Your attorney will notify the Seller’s attorney of the walk-through issues, along with what you’re requesting that the Seller do about them. The three most common solutions that buyers propose to sellers for resolving walk-through issues are: (a) delay the closing pending the repair of the issue by the Seller; (b) accept monetary compensation from the Seller and take care of the issue yourself after closing; or (c) complete the closing but hold an escrow of some portion of Seller’s money, to be used to pay for the repair of the issue after closing.
For example, if the Seller has left debris in the attic, you can either (a) ask the Seller to have the debris removed and suspend the closing pending its removal; (b) ask the Seller to give you money and then take care of removing the debris yourself after closing; or (c) agree to move forward with the closing if some of the Seller’s proceeds are escrowed to pay for the removal of the debris within a certain time after closing.
The walk-through issues will be negotiated with the Seller until an agreement is reached. Once an agreement is reached, the parties can proceed to closing. (If no agreement is reached, the parties’ options will be determined by the language of the Contract and applicable law.)
How do I prepare for it?
1. Give yourself as much leeway as possible with respect to timing when figuring out your moving plans. While many deals do close on the closing date listed in the Contract, many deals do not. (Of those deals that do not close on the original closing date, delays of 1-3 days are probably the most common.) So as you navigate the closing process and stumbling blocks arise, you may find that you need to adjust your moving plans accordingly. The more leeway you give yourself between the anticipated closing date and your move, the less you’ll have to rejigger your plans when things come up.
2. Stay in tune with your loan processor all along the way. By far, the most common factor that delays closings is the mortgage approval process, so if you stay on top of that, chances are good that you’ll close on time. Because of this, it’s important that you stay on top of your lender’s requests for documents so the approval process moves along efficiently, and also that you seek regular updates from your loan processor as to the anticipated timing of “final loan approval” and the closing.
3. Don’t do anything that can damage your credit before the closing. Your lender will be running another credit check right before the closing, so refrain from making major purchases, don’t open new credit lines, and stay on top of your monthly payments.
4. Figure out what private services you’ll need at the property. Moving into a new home means setting up utilities accounts for electricity, gas and water (unless any of those services are municipally owned and operated in your town) and arranging for other private services like internet, phone, and TV connections, trash pick-up, and lawn maintenance. Start doing research into service providers (your real estate agent can assist you with figuring out which utility companies service the property, by reaching out to the Seller’s agent.) You’ll want your utilities services to start as of the actual closing date, and you’ll want the other services to start at some point after the closing.
Things to remember:
* The closing date is set by the agreement of the parties, meaning, it’s not just up to you. Although the lender is most often the cause for delays to the closing date, there are any number of other things that can delay the closing, from the mortgage application process, inspection repairs, and title issues, to the Seller’s own moving plans, Buyer work commitments, the schedules of the attorneys, and more. Just because a specific date and time work for you, doesn’t mean they work for the Seller. The Seller is entitled to reasonable adjustment of the closing date just like you are.
* The steps above describe the “Preparation for Closing” period from the perspective of you, as the Buyer. There are a number of other tasks being performed behind the scenes by the attorneys for each party, the title company, the lender, the real estate agents, and the Seller, in anticipation of the closing. For example, it’s during Preparation for closing that the legal documents for the closing (including the Deed) are drafted, reviewed and approved as between the attorneys and title company, and the loan package is prepared by the lender.
What happens next?
You’re ready to close! “Preparation for Closing” ends when there’s nothing left to do but physically attend and complete the closing.
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MY CHECKLIST: Prep for Closing
◻ Obtain an update from your lender as to the status and timing of “final loan approval.”
◻ Confirm the Seller’s completion of agreed-upon repairs and obtain copies of paid receipts for all repairs.
◻ Confirm the Seller’s closure of open permits, if applicable.
◻ Receive a copy of the municipal fire safety inspection certificate from the Seller.
◻ Finalize your moving plans to the extent possible (with the understanding that the closing date might change).
◻ Receive final loan approval / clearance to close from the lender. Your loan file is now assigned to a closer at the lender who will prepare the loan documents and collaborate with your attorney and settlement agent on the Closing Disclosure.
◻ Schedule a date and time for the closing with the lender that is mutually acceptable to your attorney, the Seller, the Seller’s attorney and the settlement agent.
◻ Schedule the transfer of any accounts for private utilities to your name as of the Closing.
◻ Schedule the post-closing installation of any private home services, such as internet, phone and TV service, trash pick-up, security systems and lawn maintenance.
◻ Receive the initial Closing Disclosure from the lender at least three business days prior to the Closing.
◻ Receive the finalized Closing Disclosure, including your Cash-to-Close figure, from your
attorney at least three business days prior to the Closing.
◻ Go to the bank for a bank check in the amount of your Cash-to-Close, or wire the funds to the settlement agent in advance of the Closing. (Wait for your attorney to instruct you as to permissible forms of payment.)
◻ Gather documents you’ll need to bring to the Closing: two forms of photo identification for each buyer, your bank check, and your personal checkbook.
◻ Perform your final walk-through of the property within 24 hours of the Closing, accompanied by your real estate agent. Promptly notify your attorney of any issues.
◻ NEXT STEP: Attend the Closing!