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What Should I Expect at the Closing?

 

The last step in the mortgage lending process is the closing. Since the closing is a process in itself, we'll explain what happens during and after a closing, walk you through you all the closing expenses, and even explain some of the documents you'll receive along with a new set of keys on this momentous day.

The Closing Process

The closing meeting is where ownership of the home is officially transferred from the seller to you. Your closing agent coordinates the process, reviews all of the documents, makes sure everything is properly signed and arranges for the collection and disbursement of funds. Your main role is to review and sign the many related documents and to pay the closing costs.

Most of the people involved with the purchase of your home will attend your loan closing. The closing is a formal meeting typically attended by the buyer(s) and the seller(s) (and their attorneys if they have them), both real estate sales professionals, a representative of the lender, and, of course, the closing agent. The meeting takes about one hour and usually is held at the closing agent's office.

The steps below explain what happens during and after the closing meeting:

  1. First, the closing agent reviews the settlement sheet with you and the seller and answers any questions. Both you and the seller sign the settlement sheet.
  2. Then, the closing agent asks you to sign the other loan documents, such as the mortgage note and the Truth-in-Lending statement. Evidence of required insurance and inspections is also presented (if it wasn't previously given to the lender).
  3. After that, if everyone agrees that the papers are in order, you (and the seller) submit a certified or cashier's check to cover the closing costs and the balance of funds due (if applicable). And, the check from the lender covering the mortgage amount is submitted to the closing agent.
  4. Next, if the lender will be paying your annual property taxes and homeowner's insurance for you, a new escrow account (or reserve) is established at this point.
  5. Finally,you receive the keys to your new home.
  6. After the meeting, the closing agent officially records the mortgage and deed at your local government clerk's office or registry of deeds. This legal transfer of the property may take a few days after closing. The closing agent usually will not disburse the funds to everyone who is owed money from the sale (including the seller, real estate professionals, and the lender) until the transaction has been recorded. It is at the point of deed recordation that you become the official owner of the home.

Closing Documents

You will receive a number of important documents at the closing meeting. Review this list of documents before you go, so that you'll know what to expect when you're there.

HUD-1 Settlement Sheet

The settlement sheet itemizes the services provided and lists the charges to the buyer and the seller. It is filled out by your closing agent and must be signed by both you and the seller. You should have been allowed to review this form on the business day before your closing meeting so that you will be able to know your closing costs in advance.

Truth-in-Lending (TIL) Statement

Within three business days of applying for a loan to purchase a home, your lender should have given you this document, which outlines the costs of your loan. You receive it at that time so you can review any changes to the annual percentage rate (APR), added points, and certain other costs of credit. The TIL statement also discloses other terms of the loan, including the finance charge, the amount financed, the payment amount, and the total payments required.

The Note

The mortgage (or promissory) note is a legal "IOU." The note represents your promise to pay the lender according to the agreed terms of the loan, including the dates on which your mortgage payments must be made and the location to which they must be sent. The note also details the penalties that will be assessed if you fail to make your monthly mortgage payments. And, it warns you that the lender can "call" the loan (require full repayment before the end of the loan term) if you violate the terms of your note or mortgage.

The Mortgage or Deed of Trust

The mortgage is the legal document that secures the note and gives the lender a legal claim against your house if you default on the note's terms. In effect, you have possession of the property, but the lender has an ownership interest (called an "encumbrance") until the loan has been fully repaid.

The mortgage restates the basic information found in the note. It also states your responsibilities to pay principal and interest, taxes, and insurance on time; to maintain hazard insurance on the property; and to adequately maintain the property and not allow it to deteriorate. If you consistently fail to meet these requirements, the lender can demand full payment of the loan balance or foreclose on the property, sell it, and use the proceeds to pay off the outstanding loan and the foreclosure costs.

In some states, a "deed of trust" is used instead of a mortgage. By signing a deed of trust, you receive title to the property but convey title to a neutral third party (called a trustee) until the loan balance is paid.

Affidavits

You may be asked to sign numerous affidavits. For example, you may be required to sign an affidavit of occupancy, which states that you will use the property as a principal residence. Or you and the seller may need to sign an affidavit that states that all of the improvements to the property that were required in the sales contract were completed before closing. Ask your lender whether you'll be required to sign any affidavits at closing.

The Deed

Only the seller signs the deed at closing. It is the document that transfers ownership from the seller to you. Your name and the names of any other buyers appear on the deed. You'll receive a copy of the deed at the closing. The closing agent then records the deed (with you listed as the new property owner). The deed will be sent to you after it is recorded or you may arrange to have your title company store it for you for a small annual fee.

Closing Costs

Closing costs, including official documents, inspections and other fees, are part of all loans and are normally paid by the buyer. In the case of Conventional and FHA loans, closing costs may be paid by the seller. If you have a VA loan, the seller may pay closing costs as well as prepaid expenses. Sales contracts should be explicit in stating what charges each party will pay. As required by the Real Estate Settlement Procedures Act (RESPA), you will be given an opportunity to see the "settlement statement" at least once prior to closing. This statement will show all costs for both buyer and seller.

Some Typical Closing Costs Include:

  • Attorney's Fee
  • Origination Fee
  • Title Insurance
  • Appraisal Fee
  • Credit Report Survey
  • Recording Fees
  • Pest Inspection
  • FHA Guaranty Fee
  • Mortgage Insurance Premium
  • Underwriting Fee
  • Discount Points
  • Real Estate Escrow
  • Tax Service Fee
  • Buy-Down Fee
  • Inspection Fee
  • Pest Inspection Fee
  • Well/Septic Inspection Fee
  • Prepaid Expenses
  • Mortgage Insurance Premium (if less than 20% down payment)
  • Flood Insurance (if applicable)
  • Homeowner's Insurance (1-year paid policy)
  • Interim Interest (from the closing date to the first of the next month)
  • USDA/RFCD Mortgage Insurance Premium
  • VA Funding Fee1

1 Can be financed