Once your application for a mortgage loan has been approved and you have received a lender commitment letter, the final step before you can call the house your own is the closing. Even though you have a signed purchase agreement and your loan request has been approved, you have no rights to the property, including access, until the legal title to the property is transferred to you and the loan is closed.
At closing, you will 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.
An estimated closing date was probably specified in the sales contract, but a firm date needs to be set by you and the seller of the property. You want to make sure that settlement will take place before your loan commitment expires and before any rate lock, agreement (guaranteed terms of the loan) expires. Your Loan Status has your scheduled closing date. The settlement date also has to allow adequate time to assemble all of the required documentation. If repairs or maintenance on the property are a part of commitment, there must be time to complete them.
The real estate agents involved in the sales transaction are responsible to coordinate the closing. Typically, a closing will need to be scheduled at least two weeks in advance in order to prepare the loan documents and get them to the closing agent but two weeks may be very tight. If the closing date has to be postponed, all parties involved, including the lender, buyer, seller and closing agent must be informed and a written amendment to the closing date signed by both buyer and seller.
There are standard documents and exhibits that are commonly required for a loan closing, regardless of jurisdiction. Some of these will be your responsibility and others will be the responsibility of the seller. The following documents are typically required for closing:
Ø Title Insurance Policy
Ø Homeowner's Insurance
Ø Survey or Plot Plan
Ø Flood Insurance (if the flood certification or the appraisal determines that the property is located within a defined flood plain, you will need a flood insurance policy. The policy must remain in force for the life of the loan)
Ø A Certificate of Occupancy or Building Code Compliance Letter, if your home is a new construction. The builder will obtain the certificate from the appropriate authority.
Ø 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 needed repairs should be spelled out in the purchase contract.
Ø Other Documentation (this will depend upon terms of the sale, peculiarities of the property and local ordinances and custom, i.e. 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 approval of your loan)
The actual loan closing procedure, including who conducts the closing and who is present, depends upon local law, custom and Lender practices. Some states require that you be represented by an attorney, others do not. Even if it is not required by law, you may want to have an attorney review the closing documents. The actual closing is conducted by a closing agent at a title or escrow company, or it may be an attorney representing you. It is not unusual for the parties to the transaction to complete the closing without ever meeting in person.
The closing agent will have received instructions from the lender on how the loan is to be documented and the funds disbursed, and will have collected all of the necessary exhibits from you, the seller and the lender. The closing agent will make sure that all necessary papers are signed and recorded and that funds are properly disbursed and accounted for when the closing is completed. In many states, the closing attorney represents the lender in the transaction.
You typically need to come to the closing with a certified check for the closing costs, including the balance of the down payment. You can get the exact figure a day or two prior to the closing from the lender or the closing agent. You should also bring the homeowners insurance policy and proof of payment if it has not yet been delivered. Your role at closing is to review and sign the numerous documents associated with a mortgage loan. The closing agent should explain the nature and purpose of each one and give you and/or your attorney an opportunity to check them before signing. Following is a list of the documents most commonly included in a real estate transaction:
Ø Settlement Statement HUD-1 Form
Ø Truth-in-Lending Statement
Ø The Mortgage Note
Ø The Mortgage or Deed of Trust
Ø Miscellaneous Documents (there will be a number of documents or affidavits that you will be asked to sign at closing. Some are lender requirements (e.g. a statement that you intend to occupy the property as your primary residence), or are required by state or Federal law.
These instruments should not be taken lightly. Some provide for criminal penalties for false information, and some may give the lender the right to call your loan, which means the entire loan amount becomes immediately due and payable under certain circumstances. When everything has been signed and the closing agent is satisfied that all of the instructions for closing have been complied with in full, you become the owner and are given the keys to the property, copies of all documents and any other incidentals such as garage door openers, etc.