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CLOSING ON YOUR NEW HOME:
This section discusses the various
activities that must happen before you can close on your loan, 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. Of course, as your
Buyer's Agents, we will assist you every step of the way in the closing process!
Closing Activities
Checklist
In the weeks before closing,
you’ll need to make some important decisions. Your lender, and your 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.
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.
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.
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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