Closing a mortgage is one of the most important steps in buying a home. When it is over, you will officially be a homeowner and you'll be locked into what will probably be the biggest purchase of your lifetime. Here are some tips to help you ensure that your closing experience is a good one.
Do I Need an Attorney at Closing?
Whether you need a lawyer at the closing depends on where you live and the regulatory requirements in your residence area. Talk to your closing agent and ask him or her about the local norm with respect to attorney presence at a closing. If you would feel more comfortable having an attorney represent you during the closing process, by all means feel free to enlist the help of a local lawyer or someone who is not an attorney but understands the intricacies of real estate and closing legalese.
How Does a Lender Determine Closing Fees?
Fees that your lender charges you at closing come from various sources, including:
- Third-party fees, which generally are collected by the lender and then passed onto the professionals who actually performed the work. These fees cover topics ranging from courier/mailing, title insurance and survey to flood certification, appraisal, settlement or closing, and credit report.
- Taxes and other unavoidable fees, such as state and local real estate fees
- Lender fees, which cover everything from loan processing and paperwork preparation to points/origination.
- Required advances, such as interest due at closing or per diem interest.
What Important Documents Will I Sign at Closing?
You will be signing four important documents at closing-but it is not uncommon that a closing mandates more paperwork, depending on the lender, property being closed on, and regulatory guidelines for the particular transaction, and local laws.
The four documents to sign are:
- HUD-1 Settlement Statement
Also known as the closing statement, the HUD-1 Settlement Statement must be signed by both the buyer and the seller. It indicates in an itemized manner all fees charged in relation to your loan.
- Truth-in-Lending Statement
The Truth-in-Lending Statement tells you in detail the terms and conditions of the mortgage, including all fees and the annual percentage rate. Read it carefully and ask questions if you find that something is unclear or a fee is not in sync with what you originally discussed with the closing agent.
The note, or promissory note, is the document in which you agree to pay back the money loaned to you plus interest and other applicable charges in accordance with your mortgage's terms and conditions. The note also indicates penalties to which you could be subject if you fail to make payments on time. This document is full of legalese, so it is better to have an attorney read the text and break it down for you.
- Mortgage/Deed of Trust
The mortgage/deed of trust is the document that makes official the transfer of property ownership to the lender. In essence, you are giving up your rights to the house in case you cannot make the required monthly payments.
What Are my Options if I Cannot Attend the Closing?
Talk to your closing agent to discuss options available to you. Normally, you have three alternatives if you cannot be there on closing day. First, the closing agent can reschedule the closing date, so that all relevant parties are present. Second, you can execute a power of attorney, so that someone you trust can sign the closing paperwork on your behalf. Third, you can contact the closing agent and request that he or she mail you the documents in advance. That way, you can review, sign and mail them back to the lender long before the actual closing date.
Define an Escrow Account
When you make a monthly mortgage payment, part of the money goes to an escrow account, in which your lender withdraws funds to pay for things like home-related insurance and real estate taxes. Setting up that account makes your life easier because the lender takes care of the administrative stuff and you don't have to send three or four checks to separate entities such as your lender, municipality's tax department, and homeowner's insurance company.