Finally, your are now in the “home stretch" of owning your home! Your loan has been approved and funded. Here is what you may expect in the final meeting for signing all the paperwork, called a closing.
In this article, we will cover exactly what documents must be signed, what monies to be paid, and who will most likely attend your closing, and what documents you will be given for future safekeeping. I will also cover escrow accounts and title office fees.
OK, on Closing Day all the parties to the real estate transaction assemble in one room to sign all the paperwork, hand checks out and give you the keys to your home. In some states closings must be performed by real estate attorneys but in most states today they are held in the office of a title and escrow agency. This type of business acts as a trusted party to the transaction, holding all money until time for payments to be disbursed. The title company has your earnest money deposit you gave to the seller. They have the loan proceeds from your approved and funded loan. They know how much the seller has to pay to his own lender to pay off his old mortgage. They know how much to pay your mortgage broker. In some cases even the buyer will receive cash back at closing!
Prior to attending your closing, make sure to take with you all documents you have received to date concerning this transaction. These may include the Good Faith Estimate and Truth In Lending disclosures from the lender, the appraisal, your proof or purchase ("binder") for your homeowners insurance and, if required, flood insurance, mortgage insurance, a copy of the sales contract, and inspections.
Did you walk through the property the day before closing? You are usually permitted to do so to ensure the property is still there and in good condition, vacated and ready for you to move in. If the seller is going to stay for up to 30 days they will need to arrange to rent from you for that time.
At the closing table you will basically be doing 2 things:
- Sign - your loan paperwork and your ownership paperwork
- Pay-your down payment money and closing costs
Who will be present at your closing? Well, laws vary from state to state. Some states require all closings to be performed by real estate attorneys. You or the seller may have an attorney present even if not required by law, if you choose. If there is not an attorney conducting the closing, there will usually be an agent of the title company called the closing agent to conduct and oversee the meeting and make sure all documents are signed. The lender will have their agent there, usually. They will also usually handle the proof that title abstract has been done, title is clear and title insurance policy issued.
You will be there, of course. The seller's real estate agent will be there and the seller or his representative. Depending upon how big or complex the transaction is, each of these positions may be performed by one or more personnel and assistants. Your mortgage broker may be there as well. You can certainly ask that they attend, and they should if asked.
You will receive these documents at closing:
- HUD-1 This is the Settlement Document required by federal law, a U. S. Department of Housing & Urban Development form. It details all the settlement costs for the real estate transaction - the actual costs versus the Good Faith Estimate of those costs you previously received. Compare the HUD-1 against the GFE to guard against significant additions or increases in costs!
- The promissory note for the mortgage. This is the actual promise to pay document. It outlines the loan terms including default, pre-payment penalties, balloon payments, etc.
- Truth In Lending Document. Again, not an estimate this time but the actual loan terms and interest rate spelled out including all fees and what those additional fees do to the interest rate in terms of actual Annual Percentage Rate.
- The mortgage (or “Deed of Trust" in some states); this is the actual lien document which shall be recorded in the county courthouse to protect the lender in case of sale and ensure that they get paid first out of any sale proceeds.
- "Certificate of Occupancy" is a document for only newly built homes that says the home is inspected and safe for you to live in.
Escrow: At closing you will have to, if you have not done so already, give the escrow agent a cashiers check for your down payment plus any additional closing costs including prepaid interest, property taxes and insurance, etc. You will have been notified by the lender or mortgage broker of the exact amount to have this check prepared for. In some cases the money will have been electronically debited from your account already. The lender may require that every month your mortgage payment include not only payment of principle and interest due on the loan but payment of 1/12th of the annual property taxes and homeowners/hazard/flood insurance premium as well, to protect the lender from you allowing the insurance to lapse and a catastrophe occurring, or from the county placing a lien against the property for unpaid taxes. This money is placed into escrow until time once a year to pay property taxes, or once every quarter for the insurance to be paid, and the escrow agent then pays it for you from these prepaid funds.
I highly recommend the services of a qualified mortgage professional to guide you and answer any questions you may have during the home purchase process.
James Hussher is a Certified Mortgage Planner and licensed in all 50 states. Please visit James at http://ezmortgages123.com for all of your residential and commercial mortgage needs. Apply online, check current offered rates and loan programs and more! Many free articles and educational resources may be accessed at http://swifthussherrealestate.com which James also runs!