When you made your purchase offer to the seller, it’s also possible you paid earnest money. This is a token of good faith, reinforcing that you’re truly interested in buying the house, and giving the seller some reassurance that they can stop entertaining other offers. That earnest money is put in an “escrow account”, a midpoint between buyer and seller, serviced by the settlement agent. If the loan goes through as planned, money will be moved from the escrow account to the seller and other participants in the process. Based on the buyer’s offer and the seller’s acceptance terms, if the deal doesn’t go through, the earnest money will be given back to the buyer.
Prior to closing, a title professional will research the property in question, to make sure the home is actually available to sell, and that are no outstanding liens. A lien is the first right to funds from a sale–if there is an existing mortgage, unpaid taxes, or a judgment against the seller, the title professional will make arrangements for lien holders to get paid first when the property sells.
Once title has been researched and all necessary inspections have been made, a HUD-1 statement is issued by the settlement agent that breaks down exact closing costs to both buyer and seller. As a rule, buyers are responsible for paying closing costs. With VA loans, however, the seller pays part; additionally, if the market is favorable, buyers can also sometimes negotiate for the seller to pay all or part of the closing costs.
At closing time, the buyer and seller will go to the title office (not necessarily at the same time) and sign the huge stack of documents, prepared by the settlement agent. The buyer might bring a cashier’s check for the down payment; the lender will wire the rest of the purchase amount into the escrow account, and everything will be teed up to change hands. When all the documents are signed, title is effectively transferred from seller to buyer. You can now go home and sit tight.
Work for the settlement agent continues after the papers are signed. In the concept of closing cost, they wrap up the transaction by sending money from the escrow account into the seller’s account, or dividing it up between creditors and lien holders, if there were any. They’ll also need to pay inspectors, appraisers, and anyone else who helped out with preparing the sale. And of course, they’ll need to register the transaction with the local government, so the public record can accurately state who owns the property.
Generally several hours after the documents are signed, the buyer will receive the go-ahead to occupy the property, even though they probably took the key with them when they left the title office. Technically, if they open the door before the transaction is finalized, they’re trespassing, though sellers will rarely know or care. But because the process is so long, involved, and expensive, it’s best to do everything by the book to avoid screwing things up.