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The Closing Process

Closing is certainly the most exciting part of the mortgages process, but it demands just as much attention to detail as everything that comes before it. Make sure you are prepared for the big day.

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What Is Closing?

Closing is the final step to buying and financing a home. You may also hear it referred to as settlement. For modern lenders like Loanwise, the ideal is to close a mortgage within 30 days of the mortgage application being submitted.

No matter what type of mortgage it is, closing on time is key.

The sooner a rate/term refinance is processed, the sooner a borrower saves money. The sooner a cash-out refi is completed, the sooner a homeowner gets the money they need. And of course, the sooner a mortgage for a new home is closed, the sooner the homebuyer can move in!

Getting Ready for Closing

A smooth closing depends on the preparations you make in the days just before it.

  • Closing disclosure: Get the closing disclosure from your lender and compare it to the loan estimate you received after you submitted your application. Examine the breakdown of your closing costs, and ask about anything unexpected.
  • Mortgage documents: Ask your lender for the full set of mortgage documents in advance so you have plenty of time to check all the written terms and conditions of your loan and ensure you understand them.
  • Initial escrow statement: If you are setting up an escrow account, get the initial escrow statement, which lists your estimated taxes and insurance premiums for the first year of your mortgage.
  • Proof of homeowner’s insurance: Gather proof of homeowner’s insurance and any other required types of insurance you will need to present at closing, such as title, mortgage, or flood insurance.
  • Walk-through inspection: The day before closing, you are usually entitled to conduct a walk-through inspection of the home. Make sure it still has all the fixtures and appliances included in the sales agreement and that there is no new damage.

Signing the Documents

The exact closing documents you are required to sign and receive will vary according to local laws, but they always fall into two basic categories:

  1. Closing on the mortgage: You and your lender sign the paperwork showing that you agree on the terms of the mortgage, that you promise to pay back your home loan, and that you acknowledge your lender may make a claim on your home if you default on your payments. The most important document here is the mortgage note, also called the deed of trust.
  2. Closing on the home: You and the seller sign the paperwork transferring ownership of the home from the seller to you. This transaction centers around the deed to the home.

When you’re buying a home, both these types of closing typically happen at the same time, though sometimes documents may be signed at multiple meetings, mailed from one signatory to another, or even signed electronically if that option is available. In any case, your signature must be consistent across all the documents. You must sign your name the exact same way each time for the forms to be valid.

Be sure to bring a government-issued photo ID with you at closing.

Vesting refers to how names of property owners appear on title documents. Even if only one person applies for the mortgage, local laws may require their spouse may be included on the title documents, or a legal trust may be declared on the title to state who will inherit the property after the owner’s passing.

Once the documents are signed, the closing agent collects the money for the loan from the lender and the money for the down payment and closing costs from you. The seller may also cover certain closing costs if that is part of the sales agreement.

Then the closing agent pays the seller the purchase price of the home and distributes the closing cost money to all the involved parties. The last step for the closing agent is to send the mortgage and transfer-of-ownership documents to the local government office to be recorded in public records — and to make sure you get the keys to your new home.

A smooth closing is essential to a successful move.

Who Comes to Closing?

Depending on local regulations and policies, the people involved in closing may be all or some of the following:

  • You, the homebuyer, also known as the mortgagor
  • A representative of your lender, known as the mortgagee
  • The seller of the home
  • The real estate agents of you and the seller
  • Attorneys representing you, the seller, and the lender
  • A title company representative
  • An escrow company representative

A representative of the title company, the escrow company, or the lender may act as the closing agent, or this role may be filled by an attorney.

Closing on a Refinance Mortgage

When you are refinancing, closing is a simpler process. There is no property ownership to transfer, so far fewer people have to be involved, possibly even just you and your lender.

The rescission periodBy law, you may change your mind and cancel a refinance loan during the three business days after you sign the closing documents. At closing, your lender must give you a document called the notice of the right to rescind, which will include instructions for canceling your loan during the rescission period, should you choose to do so.

View Sources
  1. BankRate.com. (n.d.). Buying a Home? What to Expect When You're Closing. Retrieved from http://www.bankrate.com/finance/mortgages/understanding-the-closing-process-1.aspx
  2. Consumer Financial Protection Bureau. (n.d.). What Is a Mortgage "Closing"? What Happens at the Closing? Retrieved from http://www.consumerfinance.gov/askcfpb/176/what-is-a-mortgage-closing-what-happens-at-the-closing.html
  3. Zillow.com. (n.d.). Mortgage Closing Process: When Does It Close and When Do I Get a Key? Retrieved from http://www.zillow.com/mortgage-learning/mortgage-closing-process/
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