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Preparing for closing: Understanding the process

 

This is it -- the day you close on your new home! All parties will sign the papers officially closing the deal and ownership of the property will be transferred to you.

It's also your opportunity to make any last-minute changes to the transaction.

The day before closing, be sure to gather all of the paperwork you have received throughout the home-buying process: good faith estimate, contract, proof of title search and insurance if necessary, flood certification, proof of homeowners and private mortgage insurance, home appraisal and inspection reports. You may need to refer to these documents at closing.

Most home sales contracts entitle you to a walk-through inspection of the property 24 hours before closing. This is to ensure that the seller has vacated the property and left it in the condition specified in the sales contract.

If there are any major problems, you can ask to delay the closing or request that the seller deposit money into an escrow account to cover the necessary repairs.

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The closing process
At closing, your participation will be twofold:

  • Sign legal documents. These fall into two categories: the agreement between you and your lender regarding the terms and conditions of the mortgage, and the agreement between you and the seller transferring ownership of the property. Be sure to read all documents carefully before signing them, and do not sign forms with blank lines or spaces.
  • Pay closing costs and escrow items. Borrowers handle the numerous fees associated with obtaining a mortgage and transferring property ownership in one of two ways: they either roll them into the principal balance of the new loan or agree to pay higher interest rates and have their lenders foot the bill. Some home buyers may have to pay these out-of-pocket fees.

Present at closing
Although closing procedures vary from state to state (and even county to county), the following parties will generally be present at the closing or settlement meeting:

  • Closing agent, who may work for the lender or the title company.
  • Attorney: The closing agent may also be an attorney representing you or the lender. Both sides may have attorneys. You may or may not want to have an attorney present, depending on how comfortable you are with the mortgage provider or lending process.
  • Title company representative to provide written evidence of the ownership of the property.
  • Home seller.
  • The seller's real estate agent.
  • Mortgagor: the borrower of the mortgage (you).
  • Mortgagee: the lender of the mortgage.

The closing agent conducts the settlement meeting and makes sure that all documents are signed and recorded and that closing fees and escrow payments are paid and properly distributed.

Closing documents
At this point, you will receive the following important documents:

  • HUD-1 settlement statement: A detailed list of all costs related to the sale of the home. Both you and the seller (who may be paying some of the closing costs) sign it. Borrowers should compare their HUD-1 statements against their good faith estimate to see if the actual closing costs differ significantly from the closing costs estimated by their lenders earlier. By law, you have the right to review this document 24 hours before closing, and you may want to so you have some additional time to clear up any mistakes and resolve problems.

  • Final TILA statement: You received the first version of this statement after applying for your mortgage. This final version outlines the cost of your loan and APR and takes into account any modifications made to your rate, points, etc., between application and closing. Make sure that everything is in order.
  • Mortgage note: This document states your promise to repay the mortgage. It indicates the amount and terms of the loan, and what the lender can do if you fail to make payments.
  • Mortgage or Deed of Trust: This document secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.
  • Certificate of Occupancy: If you are buying a newly constructed house, you need this legal document to move in.

Once you've reviewed and signed all closing documents, the house keys are yours and you will have successfully purchased your new home!

-- Posted: March 15, 2004
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