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The Mortgage Closing Process

You’ve provided all the required documentation and done everything your mortgage lender has instructed. And now you wait the impending outcome – approved or denied. Once you get that commitment from your lender, you are nearly a homeowner. But there’s one step left and it’s an important one. It’s called the closing and it’s the day you’ll close both the sale of the home and your loan. Here’s how you can prepare for the big day.

Confirm the closing date

Once you receive the lender’s loan commitment letter, you, the seller and the lender need to confirm a date and time to handle the closing. Check the expiration date of your rate lock and make sure your closing takes place before this date.

Confirm your closing costs

When you settle, you’re required to pay both the down payment and your portion of the closing costs. Before the closing date, find out the exact amount you’ll need to bring to closing. Don’t rely on the Good Faith Estimate of Closing Costs that you received a few days after you submitted your mortgage application. These figures were only estimates as required by RESPA and may have changed. You need to get your hands on a copy of the HUD-1 Settlement Statement instead. That document shows the exact amount you’ll need to have at closing. RESPA laws allow you to request this document a day prior to closing so inform your lender of your desire to review it. If you see something that doesn’t seem right, now is the time to question it.

Also ask to see the documents you’ll need to sign at closing. They’re lengthy and if you read them in advance, you won’t feel pressured into signing without reading while at closing. If you and the seller negotiated repair work to be completed prior to closing, conduct a final inspection a day before closing to confirm that all work has been satisfactorily performed.

Requirements as to who conducts the closing vary from state to state. That individual could be an escrow agent, a realtor, an attorney that represents either you or your lender, or a representative from the title insurance company.

While at closing expect to sign these documents:

Deed

This is a legal document transferring title to real estate from one individual to another. It includes a description of the property being transferred. The laws of the state in which the property is located govern the manner in which a deed is signed. The home buyer receives the deed once the closing agent has recorded it at the appropriate government agency.

Mortgage

This document is a lien against the property. On it will be the borrower’s rights and obligations as they pertain to repaying the mortgage, (both principal and interest), paying real estate taxes on the property, as well as providing insurance. It also states the lender’s rights to initiate foreclosure proceedings should the borrower default on the loan.

Deed in Trust

In some states a Deed in Trust is used instead of a mortgage. With this document, legal rights to the title for a property are transferred by the borrower to a trustee until the balance of the loan has been fully paid. Trustees can sell property without undergoing legal proceedings in the event the borrower defaults.

Note

The Note is another legal document. On it is an acknowledgment of the debt as well as the promise to pay according to the loan terms that were agreed to. The note also confirms the lender’s rights, including steps it is authorized to take and penalties it can impose should the borrower fail to repay the loan as agreed.

HUD-1 Settlement Statement

As described above, this document that is signed by both the borrower and the lender shows how much the borrower needs to bring to closing.

Truth-In-Lending Statement

Full disclosure of all loan terms will appear on this document that is required under the Federal Truth in Lending Act. On it will be the interest rate, APR, loan amount, and the number of payments the borrower is required to make. This document is only needed in the event loan terms have changed since the time the borrower first applied for the loan.

Initial Escrow Statement

This document lists the estimated escrow payments to be made over the course of the next 12 months. Bills paid out of escrowed funds typically include property taxes and property insurance but can include other items. The borrower will receive this statement annually, modified accordingly.

Mortgage Servicing Disclosure Statement

On this document the lender will inform the borrower whether it will service the loan or whether the loan will be transferred elsewhere for servicing.

This is a lot to remember, but what is probably most important to remember are the due date, amount due, and mailing address for your mortgage payments. Know the penalties for being late, too!