Pre-Closing
Prior to closing there are several tasks that must be done. If you are using the services of a realtor, many of these tasks can be arranged by your agent. Be prepared to have enough money set aside to cover these expenses.
Property Appraisal
An appraiser will view the property and also look up the price of homes comparable to the home you want to purchase. This is done to determine the fair market price for the home.
Property Survey
A surveyor will verify the property lines for the home being purchased.
Title Search
A title company will check that there are no outstanding liens against the property or other potential claims against the property.
Homeowner's/Hazard Insurance
Obtain homeowner's/hazard insurance. Lenders often require proof of payment of the first year's premium at closing. Hazard insurance offers protection for you and the lender against loss due to fire, windstorm, and natural hazards. This coverage may be included in a homeowner's policy that insures against additional risks which may include personal liability and theft.
Home Inspection
A home inspector will determine the structural and mechanical integrity of the home. Examples of structural items to be inspected include the foundation, walls, roof, floors, windows and doors. Mechanical items to be inspected include heating, ventilating and air conditioning (HVAC), plumbing and electrical fixtures, appliances and other items that may convey.
Termite Inspection
An exterminator will inspect the home for evidence of infestation and/or damage by termites.
Radon Inspection
A radon inspection may be required in some localities EPA Radon info.
Final Walk-through Inspection
It is important that you complete a final inspection of the house, known as the walkthrough, within 24 hours before your closing. This is your final chance to check for any additional problems or repairs, to make sure that agreed upon repairs have been completed, and to check that the house is in the condition you would expect. You should check that all items conveying are present and left in acceptable condition. If all the requirements are not met by the official closing date, some of the seller's funds can be held in an escrow account until the required actions are completed.
Certified Check to Cover Closing Costs
A few days before closing you will be told what your final closing costs will be. You must have enough money to pay these costs on the day of closing. Usually a certified check is required for payment rather than a personal check.
Closing Participants
Several people may be at the closing representing the buyer, seller, and lender. Local laws and customs will determine who will be present at your closing.
Homebuyer
Becomes the new owner of the home once the required payments and closing transactions are completed.
Seller
Transfers the house to the homebuyer.
Real Estate Agent
Helps the homebuyer understand all the documentation to ensure that the contract stipulations are correct and that the closing process goes smoothly.
Attorney
You may use a real estate attorney to handle the closing transaction to protect your rights as a buyer and to identify any loopholes with the legalities of the contract. In some states, the escrow/closing officer will perform the function of the real estate attorney.
Escrow/Closing Officer
The escrow/closing officer is a neutral third party who helps both the buyer and seller, ensuring that all documents, inspections, and funds required to close the transaction are completed and received by the appropriate party.
Title Company
Performs title search for the property. In some cases, the title company can coordinate the closing transactions.
Lender
Provides the loan package for the buyer.
Servicer
Organization (usually a lender) that collects your monthly mortgage payments and services your loan.
What Happens at Closing
Closing day is the day the homebuyer and the seller complete the legal transfer of the house. Once the closing process has been completed, the keys to the house are given to the buyer.
Present Homeowner's Insurance Receipt
A receipt will be given from the buyer to the lender to verify that homeowner's insurance has been obtained for the property.
Present Closing Costs Check
Certified checks from the buyer and seller are given to the closing agent to cover the closing costs.
Review All Other Documents
The closing agent will have the buyer and seller review and, if correct, sign all remaining documents that are part of the closing process.
Establish an Escrow Account
The closing agent will establish an escrow account for the buyer to cover property tax, homeowner's insurance, interim interest, and possibly private mortgage insurance.
Execute Mortgage Documents
The buyer reviews and signs all of the documents required by the lender, the most important of which are the note and security instrument (either a mortgage or a deed of trust).
Present Mortgage Check
A check is given by the lender to the closing agent to cover the mortgage amount.
Receive Title to the Property
A warranty deed is given to the buyer, signed by the seller.
Receive Keys to the Property
At the conclusion of the closing process the buyer will be presented the keys to the home. These keys should be temporary though. It is common practice to replace all the locks on the home to prevent anyone with duplicate keys from entering the home. The seller may also provide the buyer with other documents such as instructions and warranties for appliances and other major components that are part of the home.
Record Legal Documents
The recording process is the final step in the closing process. The escrow/closing company, attorney, or title company that handles your transaction will complete the recording. The process officially records certain documents such as the warranty deed and the security instrument.
Paperwork You Will Sign
On closing day, you will have a series of closing papers to sign. It is important that you review each of these documents with your real estate agent or attorney before signing.
Real Estate Settlement Procedures Act (RESPA)
Statement that acknowledges that you have been informed about how the closing process works, and that you fully understand all the closing documents and financial obligations related to the mortgage.
Truth in Lending Disclosure Statement (TIL)
Final statement that requires lenders to disclose all the actual terms and conditions of the loan. The final disclosure statement makes any corrections to the preliminary Truth in Lending Disclosure statement you received when you applied for the loan.
Mortgage Note
Buyer's commitment to repay the mortgage. The note stipulates terms for the loan including the loan amount, interest rate, address to send payments, maturity date for mortgage, frequency of payments, and the change dates for adjustable rate mortgages.
Security Instrument (Mortgage or "Deed of Trust")
Pledge of the property as security for the loan. The document stipulates the same basic debt information that is found in the note and is recorded.
Warranty Deed
Legal document that transfers the title from the seller to the buyer. The deed identifies the name of the seller as the grantor and the name of the buyer as the grantee.
Other documents
Depending on local laws and customs other documents may be used in your closing process. On the next page are some of the more common documents used.
Local laws and customs will determine whether or not other documents will be used in your closing process. Some contain information that by law you are required to receive. These documents may require your signature to verify that you have received, read, and understood the document. Below are some of the more common documents used.
Loan Application
Confirmation that the information, such as your employment and marital status, that was given when you first applied for the loan has not changed.
Escrow Analysis
Lender provides a detailed itemization of the escrow account used in servicing your loan.
Tax Authorization
Gives permission to your local real estate taxing authority to send tax bills directly to your loan servicer so that payments may be made from loan's escrow account.
Post-Closing
After the closing, the majority of your work is over. Following are some post closing matters that occur for many homebuyers.
Servicing Transfer Statement
Once you begin making your monthly mortgage payments, you may receive a Servicing Transfer Statement from your lender. The lender that sold your mortgage loan may not necessarily be the lender that will be servicing your loan. This Servicing Transfer Statement will indicate that your loan has been sold. This simply means that your lender has sold your mortgage loan to another lender. This has no impact on your mortgage except that you will be paying your monthly mortgage payments to another lender.
Mortgage Payment Adjustments
Periodically your loan servicer will send you a new statement showing the payment due for each billing cycle. This amount may go up or down depending on several factors. For example, if the local property tax rate has been raised, the payments may be increased to maintain sufficient funds in the escrow account.
Homeowner's Association Fees
If the property you purchased is part of a Homeowner's Association (HOA), you will need to inform them that you are the new owner of the property. Most Homeowner's Associations require you to pay a fee. The fee is usually collected monthly or quarterly and usually covers trash pickup, snow removal, maintenance of common areas, and use of community facilities.
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