Closing Your Loan
We are now at the stage in the journey where the house officially becomes yours, and you become a homeowner.
At this point, you have completed negotiations for the terms of the home purchase, determined your loan, and probably started thinking about any home improvements you may want to make. Now is the time to tie up loose ends, fill out any remaining paperwork for your mortgage, inform your rental management company that you’re moving out (if applicable), and start planning your move.
Buying a home is likely one of the biggest purchases you’ll make, so it makes sense that you’ll have several items to check off leading up to closing. This includes activities like getting homeowners insurance, scheduling your closing, and taking the final walk-through. While it can be overwhelming, just remember what you have accomplished to get to this point. You’re so close to the finish line. Let’s take a closer look at the steps you’ll take to finalize your loan.
Prepare for Closing
In the time leading up to closing you’ll probably talk to your real estate agent and lender more often.
- You’ll need to confirm your closing date and location with your lender, real estate agent, and closing agent.
- Depending on where you live, your closing agent may be a title company, attorney, escrow company, or lender, and they will ensure that your documents are ready.
- Your real estate agent will help answer your questions and work to resolve any remaining issues with the home.
- Your lender will finalize any outstanding paperwork for your mortgage application.
- Your lender will also make sure the money for your mortgage closing is available and closing funds are accessible so you can close on time.
Remember, closing costs include lender fees, title and settlement fees, possible legal fees (some states require a real estate attorney), real estate taxes, and homeowners insurance. Make sure to get your expected payment amounts in writing from all parties.
Don’t forget: Now is not the time to open new credit card accounts, buy a car, or do anything that could negatively affect your credit score. Before making any large purchases, it’s a good idea to consult with your lender once you’ve been approved for your loan as it could impact your approval.
You will have to verify all your outstanding debt at closing. New debt can jeopardize your ability to close the loan. The lender also may review your credit one last time before lending you the money. Think of it this way—the mortgage loan isn’t guaranteed until you close on it.
– Confirm your closing date.
– Confirm expected payment amounts. (Get lender fees, title and settlement fees, possible legal fees, etc., in writing from all parties.)
|Don’t do this|
– Get a new credit card account.
– Buy a car.
(Don’t do anything that could negatively affect your credit score!)
The title company will have already ran a thorough title search on the property to determine legal ownership, including any outstanding claims or liens on the property. Then, they’ll issue the title insurance for that property. If mortgage insurance is required as part of the terms of your loan, your lender will typically get this for you. As you learned during the Mortgage Loan Process, mortgage insurance protects the lender in case you stop paying your home loan. Your title company will also handle the distribution of money, so every party gets the funds they need to complete the sale.
Obtain Your Deed and Title at Closing
A deed is a physical, legal document that proves property ownership and property rights. Title gives you the right of ownership to the property. You need a deed to transfer the title from the seller to you. But how do you get the deed? That’s where your title company comes in. They run the title search to make sure the home seller has a right to sell the home and transfer ownership.
The title company will also check for any liens against the property (i.e., claims involving the property). If a lien (such as another mortgage on the house) exists, the seller must pay it off at settlement. If it’s good to go, then the seller will transfer the title to you at closing, and the deed will be recorded with the appropriate county office.
It’s important to check with the title company a few weeks after closing to make sure the county office officially recorded the deed. If it was not recorded, check with your lender about the deed’s status.
Homeowners insurance, sometimes referred to as hazard insurance, isn’t a maybe—it’s a must. Most lenders require that you purchase homeowners insurance as part of your approval. The policy must provide enough coverage to repair or replace your home to its pre-loss condition. This will be chosen during the mortgage loan process, and paid through closing.
Keep in mind that homeowners insurance policies do not usually cover the damage incurred from flooding or earthquakes; those events are usually covered under separate policies. Also, some policies may require separate coverage or higher deductibles for hurricane-related damages. It’s definitely wise to ask what is specifically covered by a policy before agreeing to it. Your lender will always require that you maintain at least a minimal level of coverage, but you may want to add more, depending on your needs.
It’s important to shop around for rates and coverage from a few different insurers. A great place to start is with insurance companies where you already have policies. Many insurance companies offer discounts when you bundle products, like auto and homeowners insurance. When you close on your home, you will need to provide proof of homeowners insurance.
Take Your Final Home Walk-Through
The final walk-through is your chance to make sure the property meets all the requirements listed in your contract. Most buyers do one last walk-through of the home 24 hours before the final closing date. Your Lone Star Luxury Agent will set up a time with the home seller for you to visit the home and make sure it’s in the condition you agreed to at the time of the purchase. You’ll want to confirm that the seller took care of all the repairs you discussed during the sales negotiations, removed all their belongings and trash, and that the home didn’t incur any additional damage after the home inspection.
Closing Your Loan
This is it. You’re buying a house! This is a huge accomplishment. You should be very proud. Let’s talk about what happens to ensure that the house legally becomes yours. During the closing, you’ll sign several settlement documents and provide funds for the home purchase. Your lender should wire funds for the loan to the closing agent to disburse.
You may need to bring a cashier’s check to closing or possibly send a wire for any out-of-pocket down payment or closing costs the loan doesn’t cover. Your lender and closing agent will explain where all the money goes, but don’t be afraid to ask. After both you and the seller have signed or executed all the closing documents, the title company should have everything they need to record the transfer of ownership to you, and you’ll officially become a homeowner. This lesson covers what you can expect during the closing.
Sign and Notarize Paperwork
Expect to sign a considerable number of documents during closing. While you may be tempted to sign them without reading them thoroughly, it’s extremely important to understand what the documents imply and to know that each is legally binding. It’s also imperative to check for accuracy.
Regardless of whether you close on your loan in person or electronically, ask for your paperwork ahead of time. Prepare to make time to review and ask questions prior to signing your documents. This not only saves time, but also alleviates errors in your paperwork, which avoids delays. For example, take the time to review the spelling of your name, loan terms (e.g., rate, term, payment), and closing costs. Be sure to notify your lender immediately if you find any issues or your closing may be delayed while they address the problem.
ATTENTION: There has been an increased level of fraud recently against borrowers in the closing process, often concerning wire transfer scams. For more information on how to protect yourself and your closing funds, visit the Consumer Financial Protection Bureau (CFPB) (opens in a new tab).
Here are some of the documents and forms you’ll sign:
A Closing Disclosure covers all the final details of your loan, including the terms of your loan, monthly payment, and details of your closing costs. As you learned in Understanding the Mortgage Loan Process, you will have received a copy of this to review at least 3 days prior to closing and another copy to sign at closing. Prior to closing you should check the Closing Disclosure against the Loan Estimate you received when you applied for the mortgage for any large discrepancies. The Consumer Financial Protection Bureau (CFPB) provides a helpful example (opens in a new tab) of the Closing Disclosure.
This final version of the loan application will require your signature and date. It contains details about your income, assets, and liabilities. It should be reviewed for accuracy.
Mortgage Note (Promissory Note)
The note is the legal document that specifies your loan terms including loan amount, interest rate, and duration. It represents your commitment to pay the money back.
Deed of Trust
This is the legal document that creates the security interest in the property for the loan. It uses the house you’re buying as collateral, which means if you default on mortgage payments, the lender can foreclose on the house.
The title is the legal document that establishes your right to the home—technically, you don’t have full ownership until you pay 100% of the loan back.
The property deed is a public document that shows the transfer of property ownership from the seller to you.
Affidavits are legally binding documents that you sign to indicate that all the information you’re providing is accurate.
Initial Escrow Disclosure
If you are creating an escrow account, this document is required by federal law. This disclosure accounts for financial obligations that extend beyond the loan itself, such as real estate taxes, as well as mortgage and homeowners insurance premiums.
Homeownership Transfers to Buyer
Closing day is when the official transfer of homeownership from the home seller to you, the homebuyer, begins. If you’re closing in person, you can expect a representative from the closing agent to guide you as you sign your paperwork. Depending on the state you live in, a real estate attorney and/or notary may be present. Before you arrive, make sure you bring the items that are necessary for the closing, such as your photo ID, a cashier’s check or confirmation of wire receipt (if required), and whatever else your lender or closing agent suggests.
Use the closing on a loan checklist (opens in a new tab) to help you get everything in order and be prepared for the closing.
Here we are! The moment you’ve worked toward. It’s time to celebrate as you prepare to move into your new home. Be aware that moving can be just as overwhelming as the homebuying process.
Transfer Utilities, Move your belongings into your home. Congratulations you home owner, you. 😀
Checklist: Closing on a Loan
Use this checklist to help you get everything in order and be prepared for the closing. VIEW CHECKLIST (OPENS IN A NEW TAB)
CFPB Sample Closing Disclosure
The Consumer Financial Protection Bureau (CFPB) provides a helpful example of the Closing Disclosure. VIEW RESOURCE (OPENS IN A NEW TAB)
This glossary contains common terms often used in the homebuying process and their definitions. VIEW GLOSSARY
More First Time Home Buyer Info:
+ Rent or Buy.
+ Shopping with a Lone Star Luxury Agent.
+ Finding a Lender.
+ Understanding Debt.
+ Credit Score.
+ Things To Consider Before Buying.
+ Understanding the Mortgage Loan Process.
+ Basic Types of Mortgage Loans and Terms.
+ Looking at Types of Homes.
+ Submit a Home Offer, Get an Inspection.
+ Welcome to Homeownership.