Mortgage Closing: Demystified!
Nervous about closing?
Where will it be, who will be there?
Usually, the closing takes place at a title company or an escrow office. The following people are typically there or are represented:
- You and any co-borrower (such as your spouse).
- Closing agent, who might work for the lender or the title company.
- Attorney: The closing agent might be an attorney representing you or the lender. Both sides may have attorneys.
- Title company representative, who provides written evidence of the ownership of the property.
- Home seller.
- Seller’s real estate agent.
- Your real estate agent.
- Escrow officer.
At least three business days before closing, you receive your Closing Disclosure, which lays out the terms of the loan, including a list of fees associated with the closing. Take your time reviewing the Closing Disclosure, compare it to your Loan Estimate and make sure the loan terms are what you agreed upon. Let your Mortgage Advisor know if you believe there are mistakes and always ask about anything you don’t understand.
The day before closing, it’s wise to gather and review all the documents that were received through the process, including Loan Estimate, contract, proof of title search and insurance, flood certification, proof of homeowners’ insurance and mortgage insurance, home appraisal, inspection reports and Closing Disclosure. You might need to refer to these documents at closing.
You may be permitted (according to your contract) to walk through and inspect the property that you are buying 24 hours before the closing. This informs the buyer that the seller has left the property in the condition you agreed upon in your contract.
Important to note: you will sign a lot of documents! There are essentially two agreements at the closing: one between you and the lender and one between you and the seller. Be sure to read all documents carefully before signing them, and do not sign forms with blank lines or spaces.
Here’s what you can expect:
- You’ll present proof that you have paid the homeowners’ insurance premium on your new home. The seller will show documentation of any inspections, warranties, etc.
- The closing agent will list, collect and pay out all the money you owe the seller. These costs may include the remainder of a down payment, prepaid taxes, etc. The closing agent will then list, collect and pay out all the money the seller owes you, such as unpaid taxes or prepaid rent.
- Next, you will sign a document indicating that you have accepted the loan from your lender.
- There also will be several declarations for you to sign (see below for full list). These legally binding documents spell out the financial obligation you are taking on and your rights as a homeowner.
- Your escrow account is set up and you make an initial deposit.
- Now that you’ve promised to repay your lender, your lender will transfer the money to the seller on your behalf, as well as distribute the closing costs to the closing service providers. The seller will then sign a document called the “deed”, transferring ownership of the property to you.
- You get your new keys – the house is yours!
- The title company will prepare all the documents and make sure that they are properly recorded.
You will receive the following important documents:
- Your Closing Disclosure – a five-page document provides details of the mortgage loan, including the loan terms, estimated monthly payments and closing costs. Again, you are not supposed to receive this for the first time at the closing table; the lender is required to give it to you at least three business days before you close on the loan. During this period, compare the Loan Estimate with the Closing Disclosure.
- Your Mortgage Note, also known as the deed of trust. This is your promise to repay the mortgage loan to your lender. It indicates the amount and terms of the loan. By signing this document, you agree that the lender may foreclose on your home if you fail to repay your mortgage.
- The Deed, which transfers legal ownership of the property to you.
- Certificate of Occupancy – If you are buying a newly constructed house, you need this legal document to move in.
Sounds overwhelming? Don’t worry, both your Mortgage Advisor and the Federal government want to make sure that everything is clearly understood. You will get paperwork outlining this process and every step and fee, to ensure that you are fully in the loop. You will get the Real Estate Settlement Procedures Act paperwork, which states that you understand the closing process and financial obligations related to your mortgage; the Truth in Lending Disclosure Statement, which lays out the terms of the loan, including the annual percentage rate and information on points; and the HUD-1 Form, which itemizes all the costs related to the sale of the home.
The day you close on your new home will be one of the most rewarding experiences of your life. While homeownership does come with responsibility, you’ll take pride in the fact that you have a new home for you and your family to enjoy now and in the future.
- Avoid feeling rushed by reading all the documents that will be sent to you prior to closing. Review your documents in detail and make sure you are comfortable with them.
- Don’t hesitate to ask questions about the terminology in the closing documents. It is important that you understand everything you are signing; most homebuyers ask a lot of questions and it is expected.
- Consider having an attorney look at the documents or attend the closing with you.