The Mortgage Closing Process Explained

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Closing means commitment

Closing on your mortgage is the last step in buying your home. Once you’ve completed the closing process, you become the legal owner of your home. Obviously, this is one of the most important and critical steps, because without closing, you don’t actually own your home. We’re going to take you through all the details of the mortgage closing process, so you know what to expect.

What to expect

If you’re purchasing property, your closing is likely to be a little more involved. You’ll:

  • Complete a final walk-through
  • Pay your closing costs and down payment
  • Clear any funding conditions
  • Get your keys!

If you’re refinancing, you might have to:

  • Bring in cash for closing costs (follow your lender’s instructions, because a personal check won’t cut it)
  • Receive cash, if you’re getting a home equity loan or cash-out refinance
  • Take care of funding conditions (for example, clear a collection or tax lien.

Of course, you’ll be signing a lot of paperwork. Before doing so, however, you must absolutely understand what you’re committing to when you sign those final documents. Read more to achieve that understanding.

Prepare before closing

1-3 days prior to closing, you’ll want to prepare. Gather all the paperwork you’ve acquired since you submitted your first offer on the house through your real estate agent. This may include:

Signed contract from your real estate agent
Good-faith estimate (GFE) from your lender
Home appraisal and inspection reports – these may be provided by your lender, or the individual you contracted with to provide the appraisal and home inspection
Proof of title and title insurance from your title agent
Homeowner’s insurance and mortgage insurance from your insurance company

Some of these documents may not be needed, as your real estate agent and lender have copies of all of them. However, you should familiarize yourself with the details of the deal so far, so you’re ready when you sit down to sign papers at the closing

Who should be there?

The closing process will be different depending on where you live. You may expect your real estate agent and lender representative to be present when you sign. If you have an attorney, he or she should be present too. In some cases, you may sign at the same time, or separately, from the seller. Either way, expect the sellers real estate agent and attorney to be present, along with a title company representative, who will provide evidence that the seller owns the property.

Here’s a list of the various agents who could be present at your closing

  • Buyer’s real estate agent
  • Seller’s real estate agent
  • Lender or lender’s representative
  • Title agent
  • Attorney
  • You (the buyer)
  • The seller

Closing costs

It’s important that you understand closing costs before you close on your mortgage. Closing costs are divided into three categories: some can’t vary from disclosures at all, some can vary within predetermined ranges and others can change without limit.

Charges that cannot increase at settlement:

  • Origination fees
  • Discount points, or premium points, for the chosen interest rate
  • Adjusted origination charges (once the mortgage rate has been locked)
  • Transfer taxes

Charges that cannot increase in the aggregate by more than ten percent at settlement:

This means the total of all these charges can’t increase by more than ten percent over the total disclosed in the GFE.

  • Required settlement costs for services that the lender chooses, such as the property appraisal
  • Title and escrow services and the lender’s title insurance (if chosen by lender or if the borrower uses a company identified on the Settlement Services Provider List)
  • Required settlement services (such as pest inspections) that the borrower selects from the Settlement Services Provider List
  • Government recording charges

Charges that cannot increase in the aggregate by more than ten percent at settlement:

  • Required settlement costs for services that the borrower chooses, if the borrower selects a service provider not included on the Settlement Services Provider list
  • Title services and lender’s title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
  • Owner’s title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
  • Initial deposit for escrow account
  • Daily interest charges
  • Homeowner’s insurance

One reason that the Good Faith Estimate (GFE) is so powerful is that a lender must disclose its charges accurately. Fees are not subject to the tolerances listed above should a material change occur that directly impacts the fee, and a revised GFE is provided within three business days after the change occurs.

Paperwork

There will be many closing documents to review and sign. These may include:

  • HUD-1 Settlement Statement
  • Truth in Lending Statement TILA Statement
  • Mortgage note
  • Mortgage or Deed of Trust
  • Certificate of Occupancy

Sample documents

These sample closing documents are on external sites, and will open in another tab or browser for you.

Tips for a smooth closing

Your mortgage closing should be a mere formality with no surprises or eleventh-hour monkey wrenches, and you should have provided everything your lender needs to fund your home loan. Hopefully, this is the case, but not all closings go as anticipated. You can increase your chances of an uneventful conclusion by following these tips:
  1. Read the final documents a few days before closing
     Ask your mortgage lender to deliver copies of your final documents to you a few days before your closing date. It's much easier to review them without time pressures and real estate agents and sellers breathing down your neck. And yes, you do need to read them all.
  2. Understand and agree to everything you sign
     If you don't understand something you're signing in your closing documents, don't sign it! Ask you lender and your real estate agent for clarification. You're responsible for everything you sign, so don't obligate yourself to anything you don't understand or agree with. With most refinances, you do get a three day right of rescission, but with a home purchase there are no do-overs.
  3. Review the settlement statement
     The most important document you'll sign is the HUD-1 settlement statement. It lists all charges and indicates who pays what to whom. There's a section that compares the closing costs from the last Good Faith Estimate (GFE) from your lender to the actual costs. This is important -- by law, some of the charges can't vary from the GFE at all, while others can vary within certain tolerances. If a lender makes a mistake and there are overcharges, it has to eat the difference – not you.
  4. Meet any closing conditions when you come in
     These could include bringing a cashier's check for your down payment and / or closing costs, and satisfying underwriting conditions like paying off collections. You'll need proper identification and perhaps other paperwork like a power of attorney.

In addition to the Settlement Statement, you’ll also sign a final mortgage application. Look it over and make sure it’s accurate — that your income, debts, employment and assets are accurately represented. Even though your lender will have filled it out, you are responsible for its content. You’ll also get your final Truth-in-Lending (TIL) disclosure. It discloses the financing costs: the loan’s APR, how much you’ll pay over the life of the loan and what your mortgage payment will be. If you’re refinancing your primary residence, you’ll also get a notice of your right to rescind or cancel the transaction within three business days.

No surprises

Closing a mortgage should come with no surprises, but be prepared to put the brakes on if there are. Your loan officer should either be at the signing with you or available by telephone during your appointment to answer any questions or take care of issues that arise. Don’t sign anything you don’t 100 percent understand or agree with, and you’ll be fine.

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