Understanding the Basics

Closing–also known as “the settlement”–refers to the time during which the title to the property is transferred to the buyer, accompanied by the deed for the property. It’s also a method of reassurance for everyone involved in the purchase because everyone wants to feel secure about the transaction.

 

The closing process typically involves a number of different parties:

  • You (the buyer)

  • Your mortgage lender

  • Closing agent (this person might work for the lender or the title company)

  • Attorney (could represent you or the seller, or both sides may have attorneys)

  • The seller

  • The seller’s agent (the individual who arranges the transaction between buyer and seller)

  • Title company representative (the title company ensures the title status during closing)

There are three basic steps to the closing process: signing mortgage documents, completing paperwork to transfer the estate, and transferring payment.
 

1. Signing Mortgage Documents

During the first step, you will complete and sign all documents pertaining to the loan you’re taking out to buy the home. You will be required at this time to sign all mortgage documents provided by the lender, including:

  • Note: This paper represents your actual borrowing of the money and your guarantee to pay it back.

  • Name affidavit: It certifies that you are who you say you are.

  • Truth-in-Lending statement: This document discloses specifics on the interest rate, annual percentage rate, amount financed, and total loan cost (over its life).

  • Monthly payment letter: This reveals the breakdown of your monthly mortgage payment, so be on the lookout for any surprise additions or confusing costs.

  • Actual mortgage: This document secures the house as a form of debt payment–it allows the bank to foreclose on the property should you default on the loan.

Be sure to mentally prepare yourself for this phase of the closing process, because you will have to read and review anywhere from seven to 20 documents. Now don’t get too excited after you sign the last mortgage document because there are plenty more to come before the house is actually yours.
 

2. Completing Paperwork for Property Transfer

The second phase of closing allows you, the seller, and the title company representative to review all of the relevant paperwork prior to signing. You will all exchange, verify, and endorse:

  • Insurance certificate

  • Bill of sale

  • HUD Form 1 or Disclosure/Settlement Statement: This paper covers the actual settlement costs and amounts, and should be explained by the closing broker or agent.

  • The deed: This piece of paper is your proof that ownership of the home has been transferred to your name. It should include the names of the buyer and seller, property description, and usually guarantees that the seller has the right to sell the property.

  • Proration agreements: These documents detail how you and the seller are dividing up the costs of the home for the month in which it is bought (i.e. the seller may have already paid property taxes, so the buyer would need to reimburse the seller for a portion of it).

  • Acknowledgement of reports: This declares that the buyer has seen all reports pertaining to the property, such as surveys and inspections.

Many of these documents must be notarized and some have very particular specifications, so be sure to check your state’s guidelines.
 

3. Transferring Payment

The final step of closing involves transferring various payments to participating parties. Namely, the costs you’ll be paying for the process and transaction. Here are some of the costs you’ll need to be aware of:

  • Closing costs: You will be expected to help cover these fees, which can include appraisal fees, title insurance costs, inspection fees, attorney fees, and application costs.

  • Property Payment: It is during closing that you will hand over the down payment (which your lender will likely be paying a portion of, depending on your arrangement).

  • Escrows: Payment of the buyer’s annual taxes, insurance, and other costs may be covered by the lender, and a reserve account will be established.

 

 

Now the complicated parts are done and all that’s left is the most exciting aspect of closing, aside from its completion: being handed the keys.

 

Content Credit: Motovo 

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