This section discusses the various activities that
must happen before you can close on your loan, helps you calculate
closing expenses, and tells you what will happen at the
closing meeting, including what types of documents you
can expect to receive.
The mortgage loan closing (or settlement) is the
meeting at which you take official ownership of the
house. You’ll be required to sign many papers and
pay your closing costs at the meeting in order to take
possession of your new home. Technically, two separate
closings occur at this time: the closing of your loan and
the closing of the sale. Then, at the end of the meeting,
you get the keys to your new home!
Although the closing process varies from state to
state, and even within the same county or city, certain
activities are standard. It is to your benefit to
understand the many activities that need to occur before,
during, and after the closing meeting and their costs.
Closing
Activities Checklist
In the weeks before closing, you’ll need to make
some important decisions. Your lender, real estate sales
professional, and closing agent will be handling many
pre-closing activities. But you still need to be aware of
them and know who typically arranges and pays for each
activity.
We have provided a checklist that will help you
prepare for your loan closing.
Go to Closing Activities Checklist
Closing
Costs Checklist
No later than three business days after your loan
application was received, your lender should
have delivered or mailed to you a “good faith estimate” of the
total charges due at closing and a copy of the government
publication Settlement Costs: A HUD Guide.
Then, one business day before the closing meeting, your
closing agent must allow you to review a copy of your two-page
settlement form -- called the HUD-1 Settlement
Statement.
The good-faith-estimate is based on the lender’s
typical loan origination costs for the area where your home is located. So
the estimate usually changes between application and
closing. That is why you’ll want to review your
settlement form before the closing meeting. It will show
you the actual amount of money you’ll need to bring
to closing. Remember that you’ll need to pay your
closing costs in the form of a certified or
cashier’s check. Personal checks usually aren’t
accepted.
Closing costs vary widely depending on price,
location, and other factors. Overall, you can expect your
closing costs to amount to between 3 percent and 6
percent of the sales price.
We have provided a checklist that will help you
understand your closing costs.
Go to Closing Costs Checklist
We have also provided a worksheet that you can print
out and use to prepare your own estimate of your closing
costs.
Go to Closing Costs Worksheet
What
Happens at Closing
The closing meeting is where ownership of the home is
officially transferred from the seller to you. Your
closing agent coordinates all of the document signing and
the collection and disbursement of funds. Your main role
at the closing is to review and sign the numerous
documents related to the mortgage loan and to pay the
closing costs.
Most of the people involved with the purchase of your
new 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. Or, you may live in an area where
there is no formal closing meeting. Instead, an escrow
agent processes all the paperwork, arranges for all documents to be signed, and collects and
disburses the required funds.
The steps below explain what happens during and after
the closing meeting:
- 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.
- The closing agent then asks you to sign the other
loan documents, such as the mortgage note and Truth-in-Lending
statement. Evidence of required insurance and
inspections is also presented (if it wasn’t
previously given to the lender).
- 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.
- 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.
- You receive the keys to your new
home.
- 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 Receive
You will receive a number of important documents at
the closing meeting. Review this list of documents before
you go to the closing table, so that you will be prepared for
the documents that you will receive.
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 that you may compare the loan costs with those of
other lenders. The TIL statement
also discloses the annual percentage rate (APR). The APR
is the cost of your mortgage as a yearly rate. This rate
may be higher than the interest rate stated in your
mortgage because the APR includes any points, and
certain other costs of credit. The TIL statement also discloses
the other terms of the loan, including the finance
charge, the amount financed, The payment amount, and the total payments
required.
It is possible that the APR calculated at your loan application will change at closing. That is why
your lender is required to give you the final version of
your TIL statement at or prior to the closing meeting.
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
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.
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