Settlement and closing the transaction

What closing accomplishes

Closing settles the transaction's financial obligations and completes the required documents and title transfer. Signing, funding, recording, and possession are distinct milestones. Their precise order and legal effect depend on the contract and applicable law.

Prepare the documents, money, and conditions

Review title requirements, obtain current payoff statements, confirm insurance and lender requirements, and verify agreed repairs at the final walk-through. A payoff statement can include accrued interest and charges beyond the principal balance. The walk-through checks condition; it does not establish title or loan approval.

A deed conveys ownership through valid delivery and acceptance. A promissory note states the repayment promise. A mortgage or deed of trust secures the debt. Recording generally gives public notice. A settlement disclosure lists charges and credits; it does not convey title.

Review disclosures

For most closed-end consumer mortgages secured by real property, the borrower must receive the Closing Disclosure at least three business days before consummation, when the borrower becomes contractually obligated on the credit transaction. A new waiting period is required for an annual percentage rate that becomes inaccurate beyond the permitted tolerance, a changed loan product, or an added prepayment penalty. Other corrections do not necessarily restart the period.

Federal law requires clear itemization of borrower and seller charges and identification of whether a title insurance premium covers the lender, borrower, or both. See 12 U.S.C. § 2603.

Reconcile the money

A debit charges a party; a credit recognizes funds or an adjustment in that party's favor.

• Buyer cash needed: price plus buyer charges, less loan proceeds, earnest money already deposited, and applicable credits.
• Seller net proceeds: price less debt payoffs, seller charges, and applicable adjustments.
• Count the earnest money once.

Prorations allocate income or expenses between ownership periods. Unpaid taxes ordinarily produce a seller debit and buyer credit for the seller's accrued share. Prepaid expenses benefiting the buyer ordinarily produce a buyer debit and seller credit. Follow the problem's day-count convention and closing-day allocation.

Settlement escrow holds funds pending closing conditions. A mortgage escrow account collects funds for future taxes and insurance. After conditions are met, the closing agent disburses and arranges recording as appropriate; possession follows the agreement.