Closing means commitment

You're down to the wire. Your home loan has been approved and you've set an appointment to close. What happens next?

Mortgage closing involves a few procedures. 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)

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!

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. is here to help you achieve that understanding.

Do I Really Have to Read All this Stuff?

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:

  • 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.
  • 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.
  • The most important document you'll sign is the Settlement Statement, or HUD-1. 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.
  • 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.

Closing Costs: Who Pays What to Whom?

One reason that the Good Faith Estimate is so powerful is that a lender must disclose its charges accurately. 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 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 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 can increase at settlement without limit:

  • Required settlement 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

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.

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.