What better way is there to explain you this important question visually… Check out the video (courtesy of Federal Title), it covers the most important points about what happens at a closing.
Here is a short summary:
Once you have found your new home and your offer has been accepted there is one final step to complete before you can take possession. This final step is the closing and is also referred to as the “settlement”.
The settlement is when the official and legal transfer of ownership occurs. There are three “steps” that must take place for this to happen: loan steps, legal steps, and title steps.
Loan Steps: Your lender has agreed to lend you the money and you have agreed to certain terms to pay them back. At closing the lender will collect the loan fees, insurance and interest as well as any necessary reserves.
Legal Steps: The government is also paid at closing for the recording of taxes, transfer of taxes and taxes and stamps.
Title Steps: The title establishes legal ownership and the title company actually handles this transfer. To do this they must complete an extensive search on the property to determine and confirm who currently has legal ownership of the home. They are paid for the title search, a closing fee, and for the title insurance, to protect your property against future claims of ownership.
All of these fees will be listed on a government form HUD1 and will be provided to you at your closing. Some fees vary based on where you live so be sure to talk to your lender before your closing date.