What to Expect When You Close Your Loan

You’ve signed the purchase agreement and been approved for the loan, but you still have no rights to the property until the day you get to legally transfer ownership: closing day.

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Closing day is the last piece of the puzzle, the day in which the formalities of your real estate transaction are concluded. At closing, you will sign the mortgage documents, the sellers will execute the deed to the property, funds will be collected and distributed and the closing agent will walk you through the paperwork giving you legal ownership of the home.

Closing Costs

When you get a mortgage, you and the sellers will need to pay closing costs. Closing costs are fees charged by lenders and third parties in relation to the purchase of your home. The agreement of sale negotiated previously between the buyer and seller states who will pay each cost. Bring a certified or cashier’s check for the costs owed.

Closing costs for the buyer typically cover expenses such as escrow fees, attorney fees, title insurance, appraisal and inspection, survey charge, and recording deed and mortgage.

Sellers’ expenses often include cost of the abstract or title depending on the location of the property, real estate commission, recording mortgage, survey charge, escrow fees and attorney fees.

What You Need to Close

Along with available funds for closing costs, it is also required that you provide proof of various items before you can close on your loan. They typically include: title insurance policy, homeowner’s insurance, termite inspection and certification, flood insurance, etc.

Signing the Documents

For the most part, your role at closing is to review and sign the documents of the mortgage loan. The closing agent will explain the purpose for each document and answer any questions that arise. Below is a brief description of some of the major documents associated with closing and their significance.

  • Settlement Statement (HUD 1 Form)

This form provides the details of the sale, including the price paid for the home, the amount financed, loan fees and charges, real estate taxes (which may be prorated depending on when the closing occurs in the tax year), what has been paid between you and the seller and funds due to third parties. The closing agent will prepare this statement, and both you and the seller must sign it.

  • Final Truth-in-Lending Act Disclosure

When you initially applied for a mortgage, you received a truth-in-lending statement which included the estimated monthly payment and total cost of the finance charges involved in your mortgage. You will receive an updated, final version of this document if those amounts have changed.

  • Mortgage Note

This is legal evidence of your mortgage loan and is a formal promise to repay the debt. The mortgage note explains the amount and terms of your loan, and it stipulates penalties that the lender can impose if you fail to pay.

  • Deed of Trust

This legal document lists the obligations and the rights which both you and the lender have in the mortgage agreement. Included is the right of the lender to foreclose on the home if you default on the loan.

Added to these main forms will be a number of documents required by the lender or by state or federal law. When the closing agent confirms that all the closing documents have been reviewed and signed, you become the owner and receive keys to the property.

Looking for more information on buying a home? Our Mortgage 101 handbook is the ultimate guide for first-time home buyers.

*A title company is a crucial participant in every real estate transaction. Title companies are established third parties not related to the mortgage company. They determine the record of ownership for a property and whether there are any liens on the property, and they work to resolve any issues so that the buyer can be assured of receiving a free and clear title (that is, legal ownership) for a home or property.

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