It's the day you've been waiting for since making your decision to purchase a home, got approved for home financing and signed your purchase agreement: closing day. Your loan's closing is the last piece of the puzzle; the day the formalities of your real estate transaction are concluded. Here's what happens when you close on your home.
Signing the Documents
Your primary role as a buyer at the closing table is reviewing and signing the documents of your mortgage loan. Your closing agent will explain the purpose of each document and answer any questions that come up during the process. Some of the major documents you will be required to sign include:
- Settlement Statement – HUD 1 Form – This form provides the details of the sale, including price, amount of financing, loan fees and charges, proration of real estate taxes, amounts paid between you and the seller and funds due to third parties. It must be signed by the seller and buyer and is prepared by the closing agent.
- Final Truth-in-Lending Act – When you first applied for your mortgage, you received a truth-in-lending statement which included the estimated monthly payment and total cost of finance charges involved in your mortgage. You will receive a final TILA if those amounts have changed.
- Mortgage Note – This is legal evidence of your mortgage and is a formal promise to repay the debt. It explains the amount and terms of your loans and penalties that can be inflicted by the lender if you fail to pay.
- Deed of Trust – This document lists the legal obligations and rights of you and the lender. It also states the lender’s right to foreclose on the home if you default on the loan.
These main forms will be followed by a number of documents required by the lender or required by state or Federal law.
What You Need to Close
When you get a mortgage, you and the sellers will need to pay costs associated with obtaining a loan known as closing costs. These fees are charged by lenders and third parties in relation to your home purchase. When finalizing your purchase agreement, you will have negotiated which costs the buyer or seller is responsible for paying. Bring a cashier's check for the costs owed.
Typically buyer's closings costs cover expenses for escrow fees, attorney fees, title insurance, appraisal and inspection, survey charge, and recording deed and mortgage.
Sellers' expenses usually include the cost of the abstract or title, real estate commission, recording mortgage, survey charge, escrow fees and attorney fees.
Along with funds for your closing costs, as a borrower, you will also be required to provide proof of various items prior to closing. These include the title insurance policy, homeowner's insurance, termite inspection and certification and flood insurance, if applicable.
After all the documents are signed, the sellers execute the deed to the property, funds are collected and distributed, and the closing agent is satisfied with the closing package, you become the official owner of your new home and are given keys to the property.
For more information about home buying and financing, download our free Mortgage 101 Handbook, a great reference for first-time homebuyers.