You
have finally made it to the final stage of buying or selling your home. When
you arrive for your closing it may be somewhat overwhelming. I have sat with
many homeowners who were either buying or refinancing their home. The one thing
I noticed they all had in common was the initial shock in the amount of paper
work. I will briefly go over the basics of a closing so you will know what to
expect. Knowing what you’re walking into when you arrive will calm the nerves
greatly. Your agent should also either be there or be a phone call away to
answer any questions you may have.
To
start what is a “closing”? In layman
terms a closing is a set time you finalize all the paper work and contracts
agreeing to buy or sell the property. Technically speaking the “closing” or settlement as it is referred in some places is defined as “the point in time at
which the title to the property is transferred to the buyer and, generally, a
mortgage (or deed of trust) is given by the buyer/borrower to the lender.”
The
closing will either be held at a title company or an attorney’s office. In a
nutshell, here is what happens is before you arrive to your appointment. First
the loan closer prepares and reviews all the legal documents involved in
completing the mortgage lending transaction. Then you and most normally your
agent will arrive at the office to meet with the loan closer. (Some agents do
not attend but it is a good idea that you request their presence or at least
for them to be available by the phone for questions) Next, the loan closer will
bring out a stack of paperwork (a good half inch thick) that she will roughly
go over and request signatures. This is why it is so important to have your
agent there or a phone call away for any questions that may arise.
Speaking
of documents.. even though the number maybe overwhelming it is important that
you look closely at each one. As tempting as it may be to quickly sign each
page and move on to the next. DO NOT do that!! You need to pay special attention
to the details in the documents. Verify all the spelling, names, addresses,
amounts etc are all correct or they may be recorded with the court incorrectly.
If anything is incorrect be sure to advise the loan closer as soon as it’s
noticed so they can correct it.
Here
is a list of the major documents included in the closing packet. There maybe
additional documents depending on your contract, whether you have an adjustable
rate mortgage loan or any home owner’s association agreements.
- Promissory Note — A written promise to
pay a certain amount of money at a specific time. Basically you are
agreeing to repay your loan in a timely manner according to what is
stated.
- Deed of Trust — A security document where
the borrower conveys the title (to the property) to a third party who holds
it in trust (as security) for the lender. This is similar to a mortgage,
below, but uses a third party to hold the deed instead of the mortgage
company.
Mortgage — A document pledging the property as security
for a debt. Basically if you fail to pay the loan, you are agreeing that
your lender can take the property ie: foreclose on the property.
- Uniform settlement
statement (HUD-1) — A summary form required by RESPA to be used by closing agents.
This form is used to show a summary of all your closing costs charges.
- Truth-in-lending
disclosure — A statement required by the TILA Act to include the annual
percentage rate (APR) as well as other facets of the mortgage. This is the
document that tells you how much you will pay for your loan over the
period of your mortgage, usually 30 years. This is the amount you will pay
if you do not refinance and pay the loan off.
- Title insurance policy — This is not like
home owners insurance this protects the buyer, lender or others against any
loss caused by a defect of title to the real estate. This policy protects
you and your lender's investment in case someone else claims prior
ownership of your home.
- Hazard insurance policy – Again this is not like home owners insurance
this is coverage that pays the
insured in case of property loss or damage. This policy protects you and
your lender's investment in case of weather related damage or other
covered losses.
- Right of Rescission
Disclosure— This is the utmost important short term document in the closing
packet. This is a statement of the buyer's right to nullify the
transaction within 3 days after closing. This right applies to refinances only not first purchase of a
home. That’s right if you are refinancing your home you have three
days after the date of the closing to change your mind and cancel the
transaction.
Once the documents are all
signed you are done. At this point the loan closer will disburse the funds to
all parties involved and record the deed. If you are selling or refinancing the
time it takes to receive your funds varies. Ask your loan closer what the turn
around time is.
I hope with this information
you will be more relaxed about your closing. This of course is just an overview
but it gives you a good idea. Be sure you get plenty of rest the night before
and eat a good breakfast you will need to be alert. Now that everything is done
congratulations are in order.