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Your Real Estate Closing
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Buying a Home - Closing on Your Home
This section discusses the various activities
that will 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
will 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. Nevertheless,
you need to be aware of them and know who normally 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 more than three business days after your lender receives your
loan application, your lender should deliver or mail 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. This means that the estimate usually
changes between application and closing, and this 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.
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.
The closing meeting 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, if you live in an area where there is no formal closing meeting,
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:
- 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. You will also provide evidence of required
insurance
and inspections (if not 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).
The check from the lender covering the mortgage amount is then
submitted to the closing agent.
- If the lender will be paying your annual property taxes and
homeowner’s
insurance for you, an 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 be allowed to review
this form on the business day before your closing meeting so that
you know your closing costs in advance.
Truth-in-Lending (TIL) Statement
The Truth-in-Lending statement, which outlines the costs of your
loan, is given to you within three business days after you submit
your loan application. You receive it at this time so that you may
compare loan costs with other lenders. The TIL
statement also discloses the annual percentage rate (APR),
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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