The last step needed in order to become a home owner and secure a mortgage is the closing. The closing involves signing a number of documents and paying a few fees as well. This step can prove challenging and overwhelming for most people. Being prepared beforehand can make the loan closing less confusing and a much easier overall experience.
What is the Loan Closing?
When closing a loan, the ownership to a property is transferred from one individual to another, while the person who buys the property receives a mortgage loan. Loan closing is a fairly complicated process, and it involves key decisions that will save you or cost you money.
The closing takes place at the office of a closing agent with someone working for the lender or the title company. Sometimes the closing agent can be a lawyer that was hired by you or the lender. The closing agent’s job is to inform you of what documents need to be signed and collect all of the paperwork from the buyer, the seller, and the lender.
During the meeting with the closing agent, you will discuss and agree upon the terms of your mortgage, your loan will go into effect and you will receive the loan, and the ownership of the property is transferred to you. Completing all of these steps requires the reviewing and signing of several documents.
Who Attends the Loan Closing?
Depending on state law and local customs, several people will be involved in the loan closing. People who are usually involved in the sale of a property are the seller, his or her real estate agent, your real estate agent, and the closing agent, who will usually be an attorney or a closing officer who works for the lender. If you are buying a property together with a spouse or a partner, all the people whose names are on the mortgage will have to be present or have an appropriate representation. If you are buying a unit in a new development, such as an apartment complex, multiple homebuyers will be present at the closing. Sometimes the closing can be private with only you and the closing agent present.
You can also hire a real estate attorney to assist you with the closing. Some legal questions can’t be answered by the closing agent, so having a real estate attorney present is a good idea, especially if you are buying a property that is for sale by owner. Your real estate agent doesn’t receive the commission until the loan is closed, so having additional people represent you will make sure that your best interests are being protected. Hiring a real estate attorney may cost you some money, but it will help you avoid more expensive issues that could arise in the future.
What You Need to Provide
The closing agent and the lender will be responsible for getting most of the documents ready for your closing, but there are some that you will need to provide. One document that you will have to bring to the closing is your homeowner’s insurance policy and proof of payment. Many times the lender will need to take a look at your insurance policy before scheduling the closing.
Another document that you will have to bring to the closing is a check for all of the closing costs. You have the right to receive a copy of the HUD-1 Settlement Statement at least one day before the closing. All the fees that you will be required to pay should be negotiated before the closing.
How much you will have to pay at closing depends on many factors, but here are some of the fees that you will need to cover before closing on the loan. You can find out from the lender how much this is going to cost you a few days before the closing.
- Application fee. The application fee is determined when you apply for the mortgage loan, and it covers the processing of your application. This fee may include the property appraisal fee and the credit report cost.
- Appraisal fee. Also normally charged when you apply for the mortgage loan, this fee represents the cost of an independent home appraisal.
- Origination fee. Usually charged as a percentage of your mortgage loan, this fee covers the cost of processing your mortgage application and completing your loan.
- Points. Points are fees that you pay to the lender in order to receive lower interest rates. Usually, a lender will offer you several mortgage loans with different interest rates. The lower the interest rates, the more you will have to pay on points. Points are also charged as a percentage of the mortgage loan. 1 point represents 1 percent of the loan value.
Documents that You Will Be Signing
During the closing process, you will have to sign several documents. Here are the most important ones:
- HUD-1 Settlement Statement. A very important document, the HUD-1 Settlement Statement contains an itemized listing of fees charged at closing. This document will be signed by both the seller and the buyer, and it is also known as the closing statement.
- Truth-in-Lending Statement. This paper contains the terms and conditions of your mortgage, including the APR and several other fees.
- Mortgage note. This document is basically your promise that you will pay back the mortgage loan, repaying your debt with the lender. It also includes the penalties that the lender will charge if you fail to make your monthly mortgage payments on time.
- Deed of trust. This document gives the lender the right to seize the property in case you stop making your mortgage payments.
The loan closing process may seem confusing, but it is your duty to inform yourself on all that this process entails and do your homework before buying a home. Not only will this make things easier for you when the time comes to close the loan, but it could also save you money. Seeking professional help from a real estate attorney is also a great way to make sure that your interests are protected and that you won’t have any unpleasant surprises with your mortgage loan in the future.