Explaining the Loan Process: Part 5 — The Mortgage Closing

 Explaining the Loan Process: Part 5 — The Mortgage Closing

Congratulations! You have entered the final phase of loan processing. You have submitted your loan request and your lender has underwritten and approved it. Nevertheless, before you can call the house your own, you must complete one last step: The mortgage closing.

Mortgage Closing: The Home Stretch

During closing, the property title passes from the seller to the buyer. A closing agent — an attorney or official from a title or mortgage company — oversees this process, which typically takes place at a title company, escrow office, or your home. Your closing agent acts as a mediator between the selling and the buying party. The agent ensures that all documents are signed and recorded. And, he will oversee that all funds, including closing fees and escrow payments, are paid and properly disbursed.

Just remember, the mortgage closing process varies from state to state. So, make sure to contact your closing agent to learn the specifics of your settlement.

Your Role at Closing

Closing is synonymous with signing. During the settlement, you will have to review, authorize, and date numerous legal documents. While this process may seem tedious, the end result — homeownership — is well worth the hassle.

To help illustrate the legal significance of those closing documents, here is a little more detail about some of the forms the closing agent will ask you to sign:

HUD-1 Settlement Statement

The HUD-1 Settlement Statement is typically the first document you will review with your closing agent. This form will disclose all costs related to the home purchase, including loan fees, real estate taxes, and other miscellaneous expenses. It will also include a section that compares your initial Good Faith Estimate with your final closing costs.

Truth in Lending Disclosure

Required by federal law, this form outlines the total cost of your mortgage over the life of the loan. It contains information regarding some of the most defining characteristics of your loan, including the amount financed, the annual percentage rate, the finance charge, and the payment schedule. This document will also take into consideration any modifications that may have been made to your interest rate or points during the loan process.

Promissory Note

This document is legal evidence of your mortgage and pledge to repay the loan. The promissory note details the loan amount, interest rate, payment schedule, and length of term. It also lists the penalties the lender can impose, if you fail to make routine mortgage payments.

The Deed of Trust

The Deed of Trust is a security instrument and also may be referred to as a Mortgage depending on the state your property is located in. When you sign the Deed of Trust, you pledge your home as security for a loan. This means, if you fail to make your mortgage payments, the lender has the right to foreclose on your property. Some Western states, including California, use a deed of trust in lieu of a mortgage.

Notice of Right to Cancel

Under federal law, your lender is required to supply you with a Notice of Right to Cancel. This document details the buyer's right to cancel or rescind a mortgage loan agreement on an owner-occupied refinance transaction, post closing. Typically, buyers will be permitted a three-day window to retract the loan contract.

As always, remember to talk to your closing agent if you find errors in the above documents. You want any inconsistencies or discrepancies corrected before settlement.

Some Further Tips

Closing can feel like a whirlwind. You are finalizing agreements, signing documents, exchanging forms. Large sums of money change hands. To ensure your closing goes as smoothly and quickly as possible, here are a few tips to remember:

  • Confirm the time and date of settlement immediately after receiving loan approval.
  • Confirm the recipient of closing costs and then request a certified or cashier's check from your bank, before settlement (personal checks frequently are not accepted at closing, particularly for large amounts).
  • Remember to bring your driver license or other government issued ID to settlement.
  • Request and read all the documents before closing.
  • Make sure to ask questions if you are unsure about any part of the process or paperwork.

Next Article: Explaining the Loan Process: Epilogue – Transfer of Loan Servicing