In the chaotic world of mortgage lending, there are 3 words that can make just about any Loan Officer stop and smile…”Clear To Close”.
Not only is this their favorite part of the loan process, it’s awesome news for the borrower too! This means we have all the documentation we need from you as well as loan approval, and we are ready to close the deal. The closing will take place at the office of a title company or attorney in your area who will act as our agent. A few days before closing, your Loan Officer will contact you to walk through the final information so that there won’t be any surprises at closing.
So what can you expect AT the actual closing?
The closing will take place at the office of a title company or attorney in your area who will act as our agent. If you are purchasing a new home, the seller may also be at the closing to transfer ownership to you, but in some states, these two events happen separately.During the closing, you will be reviewing and signing several loan papers. The closing agent or attorney conducting the closing should be able to answer any questions you have, or you can feel free to contact your Mortgage Loan Officer if you prefer.
The most important documents you will be signing at the closing include:
HUD-1 Settlement Statement
This document provides an itemized listing of the final fees charged in connection with your loan. If your loan is a purchase, the settlement statement will also include a listing of any fees related to the transaction between you and the seller. If the loan is a refinance, the settlement statement will show the pay off amounts of any mortgages that will be paid in full with your new loan. Most items on the statement are numbered according to a standardized system used by all lenders. These numbers will correspond to the numbers listed on the Good Faith Estimate that will be provided in your application package. This document is also commonly known as the closing statement and both the buyer and seller must sign this document.
Truth-in-Lending Statement (TIL)
This document provides full written disclosure of the terms and conditions of your mortgage, including the annual percentage rate (APR) and other fees. It is exactly the same as the TIL that you received immediately after your initial application, except it has been updated to reflect the final rate and fee information. Federal law requires that all lenders provide you with this document at closing.
Note: This is the document you sign to agree to repay your mortgage. The note will provide you with all of the details of your loan including the interest rate and length of time to repay the loan. It also explains the penalties that you may incur if you fall behind in making your payments.
Mortgage / Deed of Trust
This document pledges a property to the lender as security for repayment of a debt. Essentially, this means that you will give your property up to the lender in the event that you cannot make the mortgage payments. The Mortgage restates the basic information contained in the note, as well as details the responsibilities of the borrower. In some states, the document is called a Deed of Trust instead of a Mortgage. If your loan is a refinance, Federal Law requires that you have three days to decide positively that you want a new mortgage after you sign the documents. This means that the loan funds won’t be disbursed until three business days have passed. The closing agent will provide more details at the closing.
What about the infamous Closing Costs?
A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. These fees vary from state to state and also from lender to lender. Any lender or broker should be able to give you an estimate of their fees, but it is more difficult to tell which lenders have done their homework and are providing a complete and accurate estimate. We take quotes very seriously. We’ve completed the research necessary to make sure that our fee quotes are accurate to the city level – and that is no easy task! To assist you in evaluating our fees, we’ve grouped them as follows:
Third Party Fees
Fees that we consider third party fees include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees. Third party fees are fees that we’ll collect and pass on to the person who actually performed the service. For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee, and a title company or an attorney is paid the title insurance fees. Typically, you’ll see some minor variances in third-party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate. You may also see that some lenders absorb minor third party fees such as the flood certification fee, the tax service fee, or courier/mailing fees.
Taxes and other unavoidable
Fees that we consider to be taxes and other unavoidable include State/Local Taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If some lenders don’t quote you fees that include taxes and other unavoidable fees, don’t assume that you won’t have to pay it. It probably means that the lender who doesn’t tell you about the fee hasn’t done the research necessary to provide accurate closing costs.
Fees such as discount points, document preparation fees, and loan processing fees are retained by the lender and are used to provide you with the lowest rates possible. This is the category of fees that you should compare very closely from lender to lender before making a decision.
You may be asked to prepay some items at closing that will be due in the future. These fees are sometimes referred to as prepaid items. One of the more common required advances is called “per diem interest” or “interest due at closing.” All our mortgages have payment due dates of the 1st of the month. If your loan is closed on any day other than the first of the month, you’ll pay interest, from the date of closing through the end of the month, at closing. For example, if the loan is closed on June 15, we’ll collect interest from June 15 through June 30 at closing. This also means that you won’t make your first mortgage payment until August 1. This type of charge should not vary from lender to lender and does not need to be considered when comparing lenders. All lenders will charge you interest beginning on the day the loan funds are disbursed. It is simply a matter of when it will be collected.
Additional Potential Expenses
- If an escrow or impound account will be established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due.
- If your loan requires mortgage insurance, up to two months of the mortgage insurance will be collected at closing. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make.
- If your loan is a purchase, you’ll also need to pay for your first year’s homeowner’s insurance premium prior to closing. We consider this to be a required advance.