Closing your loan
Your home has been inspected. All contingencies have been met. Your mortgage has been approved. All your ducks are in a row.
What happens next? You close the deal!
There is no such thing as a standard closing procedure that is followed in all areas of the country. What is standard, though, is the outcome of the procedure: You settle all the financial details associated with the purchase and receive the title to your new home.
You, of course, will be in attendance, along with a representative of your lender, called a closing officer, or a representative of the title insurance company.
The closing officer's job is to make sure that all necessary documents are signed and verified and that the money from the sale is properly distributed.
You may also have your own attorney attend the closing. Sometimes, the sellers will be present, along with any real estate agents involved in the sale.
It is common for buyers and sellers to complete their paperwork in separate rooms and never see each other on the day of closing.
As the buyer, you should bring the following documents to the closing:
- Binder for Homeowners Insurance and Paid Receipt. Before going through with the closing, the closing officer will contact you to confirm that you have your binder for homeowners insurance and your paid receipt for the first-year's premium that proves you have adequate homeowners insurance for the home you are buying. Your lender will not issue the mortgage loan without it.
- Certified or Cashier's Check for your down payment and closing costs. You can find out the exact amount you will need by contacting your lender a day or two before the closing.
Three days prior to your scheduled closing date you will receive the Closing Disclosure. The Closing Disclosure provides the final loan terms and closing cost details; carefully review this document to be sure the details are correct. If something looks different than expected from the initial Loan Estimate, you should contact your lender.
Review all of your closing documents with your attorney to be sure there are no errors or problems before the closing begins. These documents will include:
- The Mortgage, a separate document that you sign at closing, pledges your home as security for the loan. In some states, buyer(s) sign a Deed of Trust rather than a mortgage, but both documents serve the same purpose.
- The Mortgage Note, your promise to repay your loan. It indicates the terms and conditions of your loan and how it will be repaid (the amount of your monthly mortgage payment for principal and interest, when it is due, the length of the mortgage, etc.).
- The Closing Disclosure provides details on the final loan terms and the itemized costs associated with the loan.
Once the closing gets under way and the closing officer has verified that you have your binder and paid receipt for homeowners insurance, he or she will explain each closing document and ask you to sign each of them. Your closing officer will answer any questions you have about the documents before you sign them, so don't hesitate to ask.
Typically, the closing officer will begin by reviewing the Mortgage Note and the mortgage document and ask you to sign them. Then, he or she will move on to the Closing Disclosure (CD). The costs being paid by the sellers and the buyers are itemized – you will find a breakdown of the costs, including:
- All the buyers' and sellers' closing costs.
- A summary of both parties' transactions by showing how funds are transferred among the buyer, seller, lender and any other parties involved in the sale.
- The net amount due from the buyers and the net amount that will be paid to the sellers
- Commissions to real estate agents involved in the sale.
- Any lender's charges made in connection with the loan, such as points and other fees.
- Items that the lender may require to be paid in advance, such as interest due from the date of the closing until the first mortgage payment.
- Amounts deposited in escrow to cover insurance and property taxes.
- Title charges for the title search required by the lender and title insurance policies for the lender and the buyer.
- Charges to cover recording the mortgage and deed at the county courthouse.
- Tax service fee to cover the lender's cost of researching the tax rate for the property.
The closing officer will then go over the summary of each party's transaction. The price of the home is listed at the top of both columns. Amounts are added or subtracted in both columns to arrive at the net amounts due from the buyer and due to the seller.
After the closing officer has covered the entire Closing Disclosure, he or she will ask for a check for the down payment and closing costs. When all of the buyer's documents have been explained and signed, the closing officer will move on to the seller's documents.
After the Closing Disclosure, the closing officer will review both of the following documents, making sure that the legal descriptions on each document match exactly:
- The Deed
- The Deed is the legal document that transfers ownership of the property from seller to buyer. Any mistakes on the deed could affect your ownership of the property so they must be identified and corrected before you close the purchase. After the closing, the closing officer will take care of recording the deed with the Registrar of Deeds in the county in which the property is located.
- Commitment for Title Insurance
- When you buy a home, in most cases you will be required to obtain title insurance. This protects your legal ownership of the property you buy. Prior to issuing the insurance, the title company will conduct a thorough search of public records to determine exceptions to coverage, such as any liens or restrictions that affect ownership of the property. The insurance company informs you of any outstanding liens so you can require the seller to satisfy them before you close.
Prior to closing, the title company will issue a commitment for title insurance. This is not the actual policy, but it guarantees the policy will be issued if conditions specified in the commitment are met. In almost all real estate transactions, separate title policies will be purchased for the lender and buyer. As the buyer, you would typically purchase the lender's policy, which covers only the amount of the loan. The buyer's policy – which insures you, the buyer – is for the full sales price and it is often paid by the seller.
The final activity at closing involves the distribution of the money generated by the sale. It's the closing agent's responsibility to present checks to:
- The sellers.
- The sellers' lender, if there is an existing mortgage on the property.
- The real estate agents involved in the sale.
- Any others who may be indicated on the Closing Disclosure.
After you have signed all the necessary documents and paid your closing costs and down payment, the closing is finished. Your possession date – the day you can move into your new home – is stated in the purchase agreement. If your possession date is the same day as your closing, before you leave the closing, you will receive the keys to your new home! If your possession date is other than the closing date, arrangements will be made to secure the keys on the possession date.