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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, the BUYER'S BROKER, 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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