In the time leading up to closing you’ll probably talk to your real estate agent and lender more often.
Remember, closing costs include lender fees, title and settlement fees, possible legal fees (some states require a real estate attorney), real estate taxes, and homeowner’s insurance. Make sure to get your expected payment amounts in writing from all parties.
Now is not the time to open new credit card accounts, buy a car, or do anything that could negatively affect your credit score. Before making any large purchases, it’s a good idea to consult with your lender once you’ve been approved for your loan as it could impact your approval.
You will have to verify all your outstanding debt at closing. New debt can jeopardize your ability to close the loan. The lender also may review your credit one last time before lending you the money. Think of it this way—the mortgage loan isn’t guaranteed until you close on it.
Before you close, your real estate agent or lender will help you select a title company. The title company will run a title search on the property to determine legal ownership, including any outstanding claims or liens on the property. Then, they’ll issue the title insurance for that property. If mortgage insurance is required as part of the terms of your loan, your lender will typically get this for you. As you learned in Module 3, The Mortgage Loan Process, mortgage insurance protects the lender in case you stop paying your home loan. Your title company may also handle the distribution of money, so every party gets the funds they need to complete the sale.
A deed is a physical, legal document that proves property ownership and property rights. Title gives you the right of ownership to the property. You need a deed to transfer the title from the seller to you. But how do you get the deed? That’s where your title company comes in. They run the title search to make sure the home seller has a right to sell the home and transfer ownership.
The title company will also check for any liens against the property (i.e., claims involving the property). If a lien (such as another mortgage on the house) exists, the seller must pay it off at settlement. If it’s good to go, then the seller will transfer the title to you at closing, and the deed will be recorded with the appropriate county office.
It’s important to check with the title company a few weeks after closing to make sure the county office officially recorded the deed. If it was not recorded, check with your lender about the deed’s status.
Homeowners insurance, sometimes referred to as hazard insurance, isn’t a maybe—it’s a must. Most lenders require that you purchase homeowner’s insurance as part of your approval. The policy must provide enough coverage to repair or replace your home to its pre-loss condition.
Keep in mind that homeowner’s insurance policies do not usually cover the damage incurred from flooding or earthquakes; those events are usually covered under separate policies. Also, some policies may require separate coverage or higher deductibles for hurricane-related damages. It’s definitely wise to ask what is specifically covered by a policy before agreeing to it. Your lender will always require that you maintain at least a minimal level of coverage, but you may want to add more, depending on your needs.
It’s important to shop around for rates and coverage from a few different insurers. A great place to start is with insurance companies where you already have policies. Many insurance companies offer discounts when you bundle products, like auto and homeowner’s insurance. When you close on your home, you will need to provide proof of homeowner’s insurance.
Expect to sign a considerable number of documents during closing. While you may be tempted to sign them without reading them thoroughly, it’s extremely important to understand what the documents imply and to know that each is legally binding. It’s also imperative to check for accuracy.
Regardless of whether you close on your loan in person or electronically, ask for your paperwork ahead of time. Prepare to make time to review and ask questions prior to signing your documents. This not only saves time, but also alleviates errors in your paperwork, which avoids delays. For example, take the time to review the spelling of your name, loan terms (e.g., rate, term, payment), and closing costs. Be sure to notify your lender immediately if you find any issues or your closing may be delayed while they address the problem.
Here is a list of some forms and documents you will be required to sign at closing:
Closing day is when the official transfer of homeownership from the home seller to you, the homebuyer, begins. If you’re closing in person, you can expect a representative from the closing agent to guide you as you sign your paperwork. Depending on the state you live in, a real estate attorney and/or notary may be present. Before you arrive, make sure you bring the items that are necessary for the closing, such as your photo ID, a cashier’s check or confirmation of wire receipt (if required), and whatever else your lender or closing agent suggests.
