Closing on a house can be a significant milestone in one's life, marking the final step toward homeownership. However, the closing process can be complex, filled with paperwork and legalities. Hence, it's critical to adequately prepare for closing day.
Here are some key steps to ensure you're ready for the closing table.
Review Your Closing Disclosure
Your mortgage lender provides this document for you to review three or more business days prior to your closing date.
The Closing Disclosure includes final details such as:
- The loan amount
- The interest rate
- The monthly principal and interest
- Prepayment penalty (if any)
- Estimated total monthly mortgage payment (including taxes, insurance, and other assessments)
- Closing costs
- Cash needed to close
It's crucial to review the Closing Disclosure carefully and discuss any significant discrepancies with the Loan Estimate with your mortgage loan officer before closing day.
Conduct a Final Walkthrough
Typically, a final walkthrough of the property is conducted 24 hours prior to closing. During this step, the buyer inspects the property to confirm that it's in the condition as stipulated in the agreement.
The buyers check if the seller has completed any agreed-upon repairs and that no new issues have emerged. They also confirm that the seller has fully moved out (unless otherwise negotiated), and that no damage has occurred during the move-out process.
If there are any problems discovered, the closing can be delayed until these issues are addressed. The buyer's real estate agent typically accompanies them during this process to provide guidance and help address any potential issues.
Prepare Your Funds
You'll need to bring a certified check or set up a wire transfer to handle your closing expenses. Ensure you know the exact amount and have the funds ready ahead of time to avoid any last-minute hiccups.
Gather Necessary Documentation
Bring along all necessary documentation to the closing. This may include your photo ID, proof of homeowners insurance, copies of your contract with the seller, and any home inspection reports.
On closing day, a homebuyer typically needs to bring the following documents:
- Photo Identification: To verify that you are indeed the buyer, you'll need to show proof with a driver's license, passport or any other government-issued ID.
- Proof of Homeowners Insurance: This document proves that you have adequate insurance for your new home.
- Closing Disclosure: This document outlines the terms and costs of your mortgage, and it should be reviewed carefully before closing.
- Loan Estimate: This includes details on the proposed mortgage terms, closing costs and features of the loan program you are selecting. The information on it should be very similar (if not identical) to the Closing Disclosure.
- Certified or Cashier’s Check: This money is to pay for your closing costs.
- Purchase Agreement: This legally binding document between a seller and a buyer includes details like the purchase price, the amount of the deposit, the closing date, the description of the property and any contingencies that must be met before the sale can be finalized.
Remember, the exact documents required can vary depending on your situation and local laws, so it's always a good idea to check with your real estate agent or closing attorney ahead of time.
Understand what you're signing
On your closing day, you'll be signing several legal closing documents, including, but not limited to, a deed of trust or mortgage, promissory note and closing disclosure.
A Deed of Trust, often used in some states for real estate transactions, is a document that secures a loan by transferring a property's legal title from the borrower (or trustor) to a trustee. A title company is typically the independent third party that serves as the trustee. This deed serves as security for the lender (or beneficiary), who is usually a bank or other financial institution. Should the borrower meet the loan terms, the legal title is given back to them. However, if the loan defaults, the trustee holds the power to sell the property to recoup the debt owed to the lender. Whether a Deed of Trust or a traditional mortgage is used largely depends on the specific laws of the state where the property is located.
A promissory note is a legal document in which one party (the issuer or maker) makes a written commitment to pay a certain sum of money to another party (the payee). This note includes the amount of debt, the interest rate, if applicable, the date, names of both parties and the maturity date. It serves as a loan agreement between individuals or entities and may contain terms for repayment, such as installment payments or a lump sum due on a specified date.
Understand each document thoroughly before you sign. Your real estate agent, lawyer, or closing agent should be capable to clarify any matters on the documents to you.
Plan for the Unexpected
Although rare, unexpected issues can arise during a real estate closing, even with thorough preparation. Here are a few potential surprises:
- Last-minute changes to the closing costs: The final closing costs may vary slightly from the estimate provided earlier due to changes in prorated fees, like property taxes or homeowners association dues.
- Title issues: Problems with the title, such as undisclosed liens, could come up during the final title search. The closing of your real estate transaction moves forward once the title issues are resolved.
- Problems discovered during the final walk-through: If you discover previously undisclosed problems or damages, it could delay the closing.
- Delays in fund transfers: Sometimes, the funds for the purchase don't arrive in time for closing, especially if there's a delay in the wire transfer.
- Buyer or seller cold feet: It's rare, but occasionally a buyer or seller might back out at the last minute.
- Errors in paperwork: Mistakes can happen, and sometimes the loan documents or closing papers may have errors. These could range from misspelled names to incorrect loan amounts, and they need to be corrected before proceeding.
Remember, while issues can be stressful, most of them can be resolved with a little extra time and patience. Stay calm, ask questions and remember that most problems on a real estate transaction can be resolved.
Preparing for your mortgage closing day doesn't have to be stressful. By being proactive and knowledgeable about the process, your closing day will likely unfold effortlessly. Remember, this is a significant step toward your new home – make sure to celebrate once all the paperwork is done!
