The Mortgage
Closing Process

Pre-closing

After receiving the clear to close from your mortgage lender, you should confirm the loan closing date. An estimated closing date was probably specified in the sale contract, but a firm date needs to be set by you, the home seller, and your lender. You want to make sure the settlement takes place before your loan commitment expires and before any rate lock agreement (guaranteed terms of the loan) expire.

The settlement date also has to allow adequate time to assemble all of the required documentation. If repairs or property maintenance are a part of the lender's commitment, there must be time to complete them. The real estate agents and the lender are often the best people to coordinate the closing arrangements.

What to expect

  • Verify documents and confirm deadlines Countdown
  • Final walk through
  • Countdown
    • The APR on the loan changes by more than 1/8th of a percent (most fixed loans) or 1/4th of a percent (most adjustable rate loans).
    • Prepayment penalty is added to mortgage
    • Change of product (fixed to adjustable)

Closing process

The mortgage closing process (also called the mortgage settlement) is the final step in the home loan process.

At closing, you’ll sign the mortgage loan documents, the seller will execute the deed to the property, funds will be collected and disbursed, and the closing agent will record the necessary instruments to give you legal ownership of the property. Settlement of a mortgage loan is a legal process, so specific procedures and requirements will vary according to state and local laws, but a general description of closing practices can help you through the process.

What to expect

Closing on a house and transferring ownership of a property is an involved process, so expect to set aside a few hours to verify loan documents and sign papers at the closing table. This process can take anywhere from an hour to several hours depending on the complexity of the transfer and who is involved.

In this final step, expect to:

  • Review every document in detail
  • Present cashier’s check for down payment or closing costs
  • Sign the final mortgage loan documents
  • Take ownership of the property

What documents are needed

Though state and local laws vary, the mortgage loan settlement has standard legal documents and exhibits commonly required for a loan closing. Some of these will be your responsibility, while others will be the responsibility of the seller.

The following documents are typically required for closing a home loan:

  • Title documents
    Title insurance ensures that the seller is the legal owner of the property and that there are no claims, liens, or pending judgments against the property that would prevent you from taking ownership. The title is issued before closing, but you are required to pay for it at the closing table.

    Every lender requires title insurance. The company issuing the title insurance policy will have researched legal records on the property to ensure that you are receiving “clear title” -- or ownership -- to the property upon transfer. Title companies may offer both a lender's policy and an owner's policy. A lender’s policy is required, but it’s a good idea to have an owner's policy as well protecting you up to the property’s full if fraud, a lien, or faulty title is discovered after closing.

  • Closing disclosure (CD)
    A Closing disclosure is a five-page document summarizing the mortgage loan terms, estimated monthly payments (taxes and insurance can vary), and closing costs. This is the most important document in the process as it outlines all the payments and credits and who is responsible. You will receive the closing disclosure three days before you close on your loan, as required by law. This allows you time to compare the Loan Estimate and Closing Disclosure to ensure you understand and agree to any changes.
  • Mortgage note
    The mortgage note (also called a promissory note) is legal evidence of your indebtedness and your formal promise to repay the debt plus interest within an agreed upon length of time. It sets out the amount and terms of the loan and also recites the penalties and steps the lender can take if you fail to make your payments on time.
  • The mortgage / deed of trust
    This is the "security instrument" which gives the lender a claim against your house if you fail to live up to the terms of the mortgage note. It recites the legal rights and obligations of both you and the lender and gives the lender the right to take the property by foreclosure if you default on the loan. The mortgage or deed of trust will be recorded, providing public notice of the lender's claim (lien) on the property.
  • Power of Attorney
    If you are unable to attend your mortgage closing, you may be eligible to have a limited power of attorney (POA). Whereas full POA allows someone to make all decisions on your behalf, a limited POA allows someone (generally your spouse) to sign documents on your behalf for a specific event or amount of time (e.g. closing on your home).
  • Closing instructions
    The Closing instructions serve to engage the closing company with the parties of the real estate transaction. The closing company agrees to provide settlement services in connection with a transaction for the sale and purchase of a property. The parties who engage are the buyers and sellers. The documentation authorizes the closing company to obtain information necessary for the closing. The closing company, in turn, agrees to prepare, deliver and record all documents, excluding legal documents, necessary to close the transaction.
  • Homeowners insurance
    A lender will require you to have homeowners insurance on the property at least in the amount of the replacement cost of the property. You should make sure the policy covers the value of the property and contents in the event they are destroyed by a catastrophic event. Home insurance policies must be paid for and be active at the time of closing and often require the borrower to pay one full year plus two additional months up front at closing.
    Quick Tip: Shop and Compare Your Home Insurance
    Homeowners insurance (hazard insurance) is a mortgage cost you can and should compare to save money. We recommend you compare policies from several carriers to get the best coverage. You have the option to choose your insurance carrier, but the lender may require the company to meet rating standards and be recognized by an independent insurance rating agency.

Other / additional documentation

Additional documentation required for closing will be set out in the commitment letter from the lender and will depend upon terms of the sale, peculiarities of the property, and local ordinances. Examples would include private road maintenance agreements if the street in front of your property is not maintained by a municipality or proof of sale of your previous home if that was a condition of your loan approval.

The following documents are less common, but can also be included in the mortgage closing process:

  • Certificate of Occupancy
    If your home is new construction, you must have a Certificate of Occupancy, usually from the city or county, before you can close the loan and move in. The builder will obtain the certificate from the appropriate authority. Many local governments require an inspection when a home is sold to see if the property conforms to local building codes. Code violations may require repairs or replacement of structural or mechanical elements. The responsibility for ordering the inspection and paying for any required repairs should be spelled out in the purchase contract.
  • Termite inspection / certification
    In many areas of the country, the property must be inspected for termites and the inspection is required in the purchase contract. It may be called a "Wood Infestation Report", “Clearance Letter”, or “Wood Destroying Insect Inspection Report”. The report is required on all FHA and VA loans, as well as many conventional loans.
  • Flood insurance
    If the lender or the appraiser determines the property is located within a defined flood plain, you will want -- and the lender will require -- a flood insurance policy. The policy must remain in force for the life of the loan. This is rarely included in a standard home insurance policy. More information can be found through FEMA’s National Flood Insurance Program.
  • Water rights transfer
    If well water, the water test will have already been completed, as you will need local government certification of the private water source and sanitary sewer facility. Properties with well and septic water sources are usually governed by county codes and standards.
    • Letters of Explanation (credit inquiries, addresses, etc…)
    • Assumption Documentation (loan transfer to another bank/investor)
    • Certificate of Occupancy / Affidavit of Employment
  • Radon test
    The Environmental Protection Agency (EPA) recommends that home buyers and sellers have their property tested for radon. Radon is an odorless, cancer-causing, radioactive gas. And radon levels that are 4 picocuries per liter (pCi/L) or higher need to be fixed. For more information on radon and why testing is important, review this EPA checklist.
  • Survey / plot plan
    Your lender may require a survey of the property, showing the property boundaries, the location of the improvements, any easements for utilities or street right-of-way, and any encroachments on the boundaries by fences or buildings. This is completed by your builder, but any concerning encroachments need to be corrected before closing. In some areas, an addendum to the title policy eliminates the need for a survey.
  • Regardless if the documents are lender or state requirements, they should not be taken lightly. Some include criminal penalties for false information, and some may give the lender the right to “call” your loan, meaning the entire loan amount becomes immediately due and payable. So, take your time and ask questions if you need clarification.

    Once everything has been signed and the closing agent is satisfied that all closing instructions have been completed, you are ready to close. Congratulations home buyer, you’ve finally become a homeowner!

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