Should I Pay Before the Closing Date?

Buying or selling property involves financial transactions beyond the purchase price. The real estate closing process finalizes the property transfer and includes various payments from both buyers and sellers. Understanding these financial obligations and their timing is important for a smooth transaction.

Types of Funds Involved in Real Estate Closing

Several types of funds are involved in a real estate closing. An initial payment is the earnest money deposit, which shows a buyer’s commitment to the purchase agreement. This deposit is held in an escrow account until closing and often ranges from 1% to 3% of the purchase price. The down payment is the portion of the home’s purchase price the buyer pays upfront, reducing the amount financed through a mortgage.

Buyers and sellers also pay various closing costs, which are fees for finalizing the transaction. These can include loan origination fees, typically around 1% of the loan amount, covering the lender’s administrative costs. Appraisal fees, generally $300 to $600, assess the home’s market value. Title insurance protects against defects in the property’s title and is often tied to the purchase price. Attorney fees, recording fees for official document registration, and escrow fees for managing funds are also standard components. Buyers typically pay between 3% and 6% of the loan amount in closing costs, not including the down payment.

Additionally, pre-paid expenses cover costs paid at closing but apply to periods after the closing date. These often include property taxes, which may require buyers to prepay several months or even a year’s worth. Homeowner’s insurance premiums for the first year are also commonly paid upfront. For properties within homeowner associations, a portion of HOA dues might be collected at closing.

When Payments Are Due

Most significant funds are exchanged at closing. The earnest money deposit is an exception, usually due shortly after the purchase agreement is signed, often within a few business days. This initial deposit secures the buyer’s offer and is held in an escrow account until the transaction is complete. If the buyer withdraws without a valid contingency, this deposit may become non-refundable.

The majority of funds, including the down payment, most closing costs, and pre-paid expenses, are due at the actual closing. This is when legal ownership transfers from the seller to the buyer, and all financial obligations are settled. An escrow or title company acts as a neutral third party to hold and disburse all funds according to the purchase agreement. They ensure the buyer’s funds are available for the seller and that all service providers receive their payments.

Expenses like property taxes and homeowner’s insurance are often prorated at closing. Proration means these costs are divided between the buyer and seller based on the number of days each party owned the property during the current payment period. For example, if the seller has already paid property taxes beyond the closing date, the buyer reimburses the seller for the unused portion. This ensures each party pays only for the period they owned the property.

Payment Methods and Procedures

Specific methods are used for remitting funds for a real estate closing due to the substantial amounts involved and the need for security. Secure payment methods like wire transfers and certified or cashier’s checks are standard. These methods ensure funds are immediately available and verified, minimizing payment delays or fraud.

Wire transfers are a common method for buyers to send their down payment and closing costs directly to the escrow or title company. Buyers should always verify the recipient’s wire instructions directly with the escrow or title company through a confirmed phone number, not relying solely on email communications. Confirming details with a known contact helps prevent funds from being sent to fraudulent accounts.

A certified or cashier’s check, obtained from a bank, provides guaranteed funds. These checks draw directly from the bank’s own funds or are certified by the bank, ensuring their validity. Buyers typically obtain these checks from their financial institution in the days leading up to closing, made out to the escrow or title company. The escrow or title company receives, holds, and disburses all funds at closing, ensuring all parties receive their appropriate payments.

Verifying Payment Amounts

Before any funds are transferred, reviewing the detailed financial figures is important for accuracy. Buyers receive two primary documents that outline these amounts: the Loan Estimate (LE) and the Closing Disclosure (CD). The Loan Estimate provides an initial projection of loan terms and closing costs. The Closing Disclosure is a comprehensive document detailing the final loan terms, projected monthly payments, and an itemized list of all closing costs.

Federal regulations require lenders to provide the Closing Disclosure at least three business days before the scheduled closing date, allowing time for review. Buyers should compare the Closing Disclosure with the Loan Estimate to identify any significant discrepancies in fees or terms. This comparison helps in understanding if any costs have unexpectedly increased or if there are new charges. If there are differences, the buyer should seek clarification.

The final walk-through of the property, typically conducted shortly before closing, can also impact payment amounts. If issues are discovered during the walk-through, this could lead to last-minute adjustments to the final payment, such as a credit from the seller. If any questions or discrepancies arise regarding the amounts on the Closing Disclosure, buyers should immediately contact their lender, real estate agent, or the escrow officer. Addressing these concerns proactively ensures the financial figures are correct and agreed upon before the official closing.