What Happens at Closing?
Lots of paper, lots of signing, and, for the neophyte, more than a little confusion typify the closing process. Here's an overview of the documentation you'll be reading and signing. But what's critical — and if you're working with a good attorney, she will insist on this — is that you receive final documentation on fees, charges, and the actual transaction price of the property before the closing. This is to make sure your lender hasn't made any mistakes or jacked up any fees. There may be some slight differences from the initial estimate of fees and settlement charges you got when you applied for the loan, but slight is the operative word here.
A title search, also referred to as title insurance, is a detailed examination of public records to confirm that the person selling you the property owns it and has the right to sell it to you. It often runs a few hundred dollars, but it's a critical expense.
Major changes need to be explained and rectified before the closing if you want things to go smoothly. By the way, it's the rare closing that happens on time and without a hitch, particularly if you're buying property. Just take the day off, if you can, and schedule a celebratory meal or drink afterward.
Here are examples of most of the documents you will be examining and signing. The names may change based on the community, state, or municipality, though federal documents shouldn't change. Read them carefully and double-check all statements and figures:
Your final truth-in-lending statement (Regulation Z): This document discloses your interest rate, annual percentage rate, amount financed, and the total cost of the loan until its scheduled payoff.
Name affidavit: This document will probably have a photocopy of your driver's license attached to it that with your signature will prove you are who you say you are.
Itemization of amount financed: An addition to the Regulation Z statement, this adds details on points and other finance costs.
The monthly payment letter: This breaks down your total monthly costs, including principal, interest, taxes, insurance, and any escrow you arranged.
The mortgage: This document puts a lien on the property as security for the loan and states the lender's foreclosure rights.
The note: This is your promise to pay back every cent you're borrowing.
HUD Form 1 or disclosure/settlement statement: This is the nittygritty of all the fees and charges. This form lists all the actual settlement costs and amounts. Mistakes happen here, along with changes that may not be mistakes. Read and compare carefully to the copies you brought with you.
Warranty deed: This deed describes the property (and therefore needs to be accurate, so check it against your earlier documents) and should state the guarantee by way of an earlier title search that the seller has the right to sell the property to the buyer at this time. When buyer and seller sign this, the property is transferred. You own it now.
Proration or cost agreements: This document details who paid the property taxes, whether anyone needs a refund, whether any home-owner's fees or related costs need to be paid, and who's paying them. This is stuff that generally can be settled before closing, but both sides need to bring a checkbook just in case.
Tax, utility, and other state and local receipts: Depending on your local rules, you need to sign a paper that confirms that these various charges are going to be paid by either the buyer, seller, or both.
Inspection, survey acknowledgment: The signatories affirm that they've seen all inspection reports on the property in question as well as a current copy of the survey.
Title search (abstract of title): The result of your title search, which essentially details and certifies the ownership history of the property.
You will be asked to present certified checks to pay closing costs — you probably won't have to carry these, they'll be issued in advance — and any remaining down payment that needs to be turned over. After this, you get the keys.
It helps to know who the players are in what will seem like a very complicated but rewarding process by the time you finish. Again, it helps to ask questions and bring in a trusted attorney to make sure you get a fair deal on your loan and a smooth closing.