What Happens on the Closing Date for a Mortgage?

The date of your first home closing is fast approaching, and you’re both excited and a little nervous. There’s a lot to do on the closing date, and the process is often confusing for a first-time homebuyer. Prepare beforehand by carefully reviewing the closing disclosure sent to you by your lender at least three days prior to the closing date. If you have questions or concerns, contact your lender as soon as possible.

TL;DR (Too Long; Didn't Read)

The closing date on a mortgage is the day you officially own the home. It's also known as the settlement.

Loan Closing vs. Real Estate Closing

Unless you are buying a house with cash, the terms “loan closing” and “real estate closing” are basically synonymous. The process is also known as the settlement. First, you close your loan with the lender, and the funds are distributed to the owner of the property and other parties involved. You are then the owner of the home, and you are responsible for the mortgage, property taxes, utilities, insurance and other costs of home ownership.

The Final Walk Through

On or within 24 hours of the closing date, you should expect to do a final walk through of the property. Take your contract along so you can use it as a checklist. You don’t want to accuse the seller of not doing something that wasn’t actually included in the contract.

During that walk through, look carefully to see that any and all repairs agreed to in the contract were made and that any items the seller was supposed to leave behind are indeed still there. Test the appliances, flush the toilets and do anything else necessary to establish that everything is in working order. Of course, you also want to make sure that the seller has actually moved out. If there is a serious issue, you can delay the closing or ask that the seller put money into an escrow account for repairs that were not made or appliances or fixtures that were removed even though they were supposed to stay. For example, if you arranged to buy the gorgeous chandelier in the dining room and it’s gone, you should get its approximate value through the escrow account.

Those Present at the Closing

Those present at the closing vary according to state law, but in general you should find your attorney and the lender’s attorney there unless you live in a state where lawyers aren’t needed for a closing. Because a house is likely your biggest investment and you aren’t an experienced buyer, it is wise to hire an attorney for the closing even if it is not mandated by state law. You can also expect to find the home seller or his legal representative and the seller’s real estate agent. Your lender is there, as is a representative from the title company. You’ll also find a closing agent who may work for either the title company or the lender. It is the closing agent’s job to conduct the meeting as well as ensure that every document is properly signed and recorded and that all fees and payments are correctly distributed.

Closing on a House

The closing requires a lot of paperwork, and it’s essential that you read and understand everything you sign. For example, you will receive numerous documents connected with your mortgage, including the loan estimator, which details the terms and rates along with closing costs such as mortgage points. Make sure you compare the loan estimator document with the information on your closing disclosure. You’ll also receive the initial escrow statement, which shows payments your lender makes from your escrow account during your mortgage’s first year. These payments primarily constitute property taxes and insurance.

You’ll also receive a mortgage note and the actual mortgage. The former is your promise to pay the mortgage, and the document includes the loan payments and terms along with what actions the lender will take should you fail to pay. The latter, also known as the deed of trust, secures your mortgage note while giving claim to the lender against the property if you do not live up to the mortgage note’s terms. If you’re moving into a brand-new house, you should also receive a certificate of occupancy at the closing. There are some items for which you can expect the seller to pay, such as the real estate commission, while you must pay for the title insurance, home appraisal, settlement and lender fees and your attorney’s fees. Add up everything for which you must pay on a calculator to make sure you are paying the right amount.

Once you’ve signed everything and all parties receive the payments to which they are entitled, the house is yours. Depending on your contract, though, you may or may not be able to move in right away. For example, if the seller hasn’t yet closed on her new home, she may arrange with you to stay in the house for a specific period of time until she can close on her new house and move in. Since it is now your house, she will pay an agreed-upon amount of rent while occupying the space.

Common Closing Problems

If you’re lucky, your closing proceeds without a hitch and when you leave the meeting, you’re a new homeowner. However, prepare yourself for possible problems, many of which are avoidable with some due diligence. Of all closing problems, the most common are document errors. If your name is misspelled, that’s a big problem. The same holds true if the amount of the mortgage or interest rate is wrong, if the down payment is incorrect and so on. That’s why checking and rechecking the closing disclosure is crucial prior to the actual closing date.

Lender issues are another major closing stumbling block, and you have less control over that. If you’re buying in the midst of a hot housing market, you can almost anticipate some sort of problem because lenders are usually overwhelmed. A lender who is working on dozens of mortgage applications at the same time can easily overlook the fact that an important piece of information, such as a tax return, isn’t in your file. The best way to limit such last-minute hitches is through ongoing communication with your lender and making sure he has all of the required documents. That’s also the job of your real estate agent, but it never hurts for you to follow up since you are the person impacted if there is a glitch in the proceedings. That’s why you should also keep in regular contact with your real estate agent and make sure that every document needed for the loan and closing is available.

One potential problem that is really out of your hands concerns the title. Perhaps the title company discovers a lien on the property or there is some sort of civil lawsuit involving the home. You can’t purchase the home without a clear title, as your lender isn’t going to lend you the mortgage monies if the title is unclear. You can protect yourself somewhat by obtaining a copy of the preliminary title report from your lender or requesting it from the title insurance company. Read it thoroughly and look for anything that shows something potentially amiss. Contact the title company prior to the closing date to make sure no title issues are pending.

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