@ The Closing Table
This section discusses the various activities that must happen before you can close on your loan, helps you calculate closing expenses, and tells you what will happen at the closing table, including what types of documents you can expect to receive.
The mortgage loan closing (or settlement) is the meeting at which you take official ownership of the house. You’ll be required to sign many papers and pay your closing costs at the meeting in order to take possession of your new home. Technically, two separate closings occur at this time: the closing of your loan and the closing of the sale. Then, at the end of the meeting, you get the keys to your new home!
Although the closing process varies from state to state, and even within the same county or city, certain activities are standard. It is to your benefit to understand the many activities that need to occur before, during, and after the closing meeting and their costs.
No later than three business days after your loan application is received, your lender should have delivered or mailed to you a “good faith estimate” of the total charges due at closing and a copy of the government publication Settlement Costs: A HUD Guide. Then, one business day before the closing meeting, your closing agent must allow you to review a copy of your two-page settlement form, called the HUD-1 Settlement Statement.
The good faith estimate is based on the lender’s typical loan origination costs for the area where your home is located. So the estimate usually changes between application and closing. That is why you’ll want to review your settlement form before the closing meeting. It will show you the actual amount of money you’ll need to bring to closing. Remember that you’ll need to pay your closing costs in the form of a certified or cashier’s check. Personal checks usually aren’t accepted.
Closing costs vary widely depending on price, location, and other factors. Overall, you can expect your closing costs to amount to between 3 percent and 6 percent of the sales price.
Closing Documents You Receive
You will receive a number of important documents at the closing meeting. Review this list of documents before you go to the closing table, so that you will be prepared for the documents that you will receive.
- Hud-1 Settlement Statement
- Truth-in-lending (TIL) Statement
- The Mortgage
- The Deed
- The Note
What Happens at Closing
The closing meeting is where ownership of the home is officially transferred from the seller to you. Your closing agent coordinates all of the document signing and the collection and disbursement of funds. Your main role at the closing is to review and sign the numerous documents related to the mortgage loan and to pay the closing costs.
Most of the people involved with the purchase of your new home will attend your loan closing. The closing is a formal meeting typically attended by the buyer(s) and the seller(s) (and their attorneys if they have them), both real estate sales professionals, a representative of the lender, and, of course, the closing agent. However, it is typical to close the buying side and selling side seperatly as well. The meeting takes about one hour and usually is held at the closing agent’s office. Or, you may live in an area where there is no formal closing meeting. Instead, an escrow agent processes all the paperwork, arranges for all documents to be signed, and collects and disburses the required funds.
The steps below explain what happens during and after the closing meeting.
1. First, the closing agent reviews the settlement sheet with you and the seller and answers any questions. Both you and the seller sign the settlement sheet (HUD-1 Statement).
2. The closing agent then asks you to sign the other loan documents, such as the mortgage note and Truth-in-Lending statement. Evidence of required insurance and inspections is also presented (if it wasn’t previously given to the lender).
3. If everyone agrees that the papers are in order, you (and the seller) submit a certified or cashier’s check to cover the closing costs and the balance of funds due (if applicable). And, the check from the lender covering the mortgage amount is submitted to the closing agent.
4. If the lender will be paying your annual property taxes and homeowner’s insurance for you, a new escrow account (or reserve) is established at this point.
5. You receive the keys to your new home.
6. After the meeting, the closing agent officially records the mortgage and deed at your local government clerk’s office or registry of deeds. This legal transfer of the property may take a few days after closing. The closing agent usually will not disburse the funds to everyone who is owed money from the sale (including the seller, real estate professionals, and the lender) until the transaction has been recorded. It is at the point of deed recordation that you become the official owner of the home.
HUD-1 Settlement Sheet
The settlement sheet itemizes the services provided and lists the charges to the buyer and the seller. It is filled out by your closing agent and must be signed by both you and the seller. You should have been allowed to review this form on the business day before your closing meeting so that you will be able to know your closing costs in advance.
Truth-in-Lending (TIL) Statement
Within three business days of applying for a loan to purchase a home, your lender should have given you this document, which outlines the costs of your loan. You receive it at that time so that you may compare the loan costs with those of other lenders. The TIL statement also discloses the annual percentage rate (APR). The APR is the cost of your mortgage as a yearly rate. This rate may be higher than the interest rate stated in your mortgage because the APR includes any points, and certain other costs of credit. The TIL statement also discloses the other terms of the loan, including the finance charge, the amount financed, The payment amount, and the total payments required. It is possible that the APR calculated at your loan application will change at closing. That is why your lender is required to give you the final version of your TIL statement at or prior to the closing meeting.
The mortgage (or promissory) note is a legal “IOU.” The note represents your promise to pay the lender according to the agreed terms of the loan, including the dates on which your mortgage payments must be made and the location to which they must be sent. The note also details the penalties that will be assessed if you fail to make your monthly mortgage payments. And, it warns you that the lender can “call” the loan (require full repayment before the end of the loan term) if you violate the terms of your note or mortgage.
The mortgage is the legal document that secures the note and gives the lender a legal claim against your house if you default on the note’s terms. In effect, you have possession of the property, but the lender has an ownership interest (called an “encumbrance”) until the loan has been fully repaid. The mortgage restates the basic information found in the note. It also states your responsibilities to pay principal and interest, taxes, and insurance on time; to maintain hazard insurance on the property; and to adequately maintain the property and not allow it to deteriorate. If you consistently fail to meet these requirements, the lender can demand full payment of the loan balance or encumbrance, foreclose on the property, sell it, and use the proceeds to pay off the outstanding loan and the foreclosure costs. In some states, a “deed of trust” is used instead of a mortgage. By signing a deed of trust, you receive title to the property but convey title to a neutral third party (called a trustee) until the loan balance is paid.
You may be asked to sign numerous affidavits. For example, you may be required to sign an affidavit of occupancy, which states that you will use the property as a principal residence. Or you and the seller may need to sign an affidavit that states that all of the improvements to the property that were required in the sales contract were completed before closing. Ask your lender whether you’ll be required to sign any affidavits at closing.
Only the seller signs the deed at closing. It is the document that transfers ownership from the seller to you. Your name and the names of any other buyers appear on the deed. You’ll usually receive a copy of the deed at the closing. The closing agent then records the deed (with you listed as the new property owner). The deed will be sent to you after it is recorded.