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Pre-Closing Activities
Prior to closing there are several tasks that must be done.
If you are using the services of a realtor, many of these
tasks can be arranged by your agent. Be prepared to have enough
money set aside to cover these expenses.
Property Appraisal - An appraiser will view the property
and also look up the price of homes comparable to the home
you want to purchase. This is done to determine the fair market
price for the home.
Property Survey - A surveyor will verify the property lines
for the home being purchased.
Title Search - A title company will check that there are
no outstanding liens against the property or other potential
claims against the property.
Homeowner's/Hazard Insurance - Obtain homeowner's/hazard insurance.
Lenders often require proof of payment of the first year's
premium at closing. Hazard insurance offers protection for
you and the lender against loss due to fire, windstorm,
and natural hazards. This coverage may be included in a
homeowner's policy that insures against additional risks
which may include personal liability and theft.
Home Inspection - A home inspector will determine the structural
and mechanical integrity of the home. Examples of structural
items to be inspected include the foundation, walls, roof,
floors, windows and doors. Mechanical items to be inspected
include heating, ventilating and air conditioning (HVAC),
plumbing and electrical fixtures, appliances and other items
that may convey.
Termite Inspection - An exterminator will inspect the home
for evidence of infestation and/or damage by termites.
Radon Inspection - A radon inspection may be required in
some localities EPA Radon info.
Final Walk-through Inspection - It is important that you complete
a final inspection of the house, known as the walkthrough,
within 24 hours before your closing. This is your final
chance to check for any additional problems or repairs,
to make sure that agreed upon repairs have been completed,
and to check that the house is in the condition you would
expect. You should check that all items conveying are present
and left in acceptable condition. If all the requirements
are not met by the official closing date, some of the seller's
funds can be held in an escrow account until the required
actions are completed.
Certified Check to Cover Closing Costs - A few days before
closing you will be told what your final closing costs will
be. You must have enough money to pay these costs on the day
of closing. Usually a certified check is required for payment
rather than a personal check.
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Closing Participants
Several people may be at the closing representing the buyer,
seller, and lender. Local laws and customs will determine
who will be present at your closing.
Homebuyer - Becomes the new owner of the home once the required
payments and closing transactions are completed.
Seller - Transfers the house to the homebuyer.
Real Estate Agent - Helps the homebuyer understand all the
documentation to ensure that the contract stipulations are
correct and that the closing process goes smoothly.
Attorney - You may use a real estate attorney to handle the
closing transaction to protect your rights as a buyer and
to identify any loopholes with the legalities of the contract.
In some states, the escrow/closing officer will perform the
function of the real estate attorney.
Escrow/Closing Officer - The escrow/closing officer is a
neutral third party who helps both the buyer and seller, ensuring
that all documents, inspections, and funds required to close
the transaction are completed and received by the appropriate
party.
Title Company - Performs title search for the property. In
some cases, the title company can coordinate the closing transactions.
Lender - Provides the loan package for the buyer.
Servicer - Organization (usually a lender) that collects
your monthly mortgage payments and services your loan.
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What Happens At Closing
Closing day is the day the homebuyer and the seller complete
the legal transfer of the house. Once the closing process
has been completed, the keys to the house are given to the
buyer.
Present Homeowner's Insurance Receipt - A receipt will be
given from the buyer to the lender to verify that homeowner's
insurance has been obtained for the property.
Review HUD-1 Settlement Statement - The closing agent will
review the HUD-1 settlement statement with the buyer and seller
to verify that the agreed upon dollar amounts have been entered
and, if so, have the buyer and seller sign the form.
Present Closing Costs Check - Certified checks from the buyer
and seller are given to the closing agent to cover the closing
costs.
Review All Other Documents - The closing agent will have
the buyer and seller review and, if correct, sign all remaining
documents that are part of the closing process.
Establish an Escrow Account - The closing agent will establish
an escrow account for the buyer to cover property tax, homeowner's
insurance, interim interest, and possibly private mortgage
insurance.
Execute Mortgage Documents - The buyer reviews and signs
all of the documents required by the lender, the most important
of which are the note and security instrument (either a mortgage
or a deed of trust).
Present Mortgage Check - A check is given by the lender to
the closing agent to cover the mortgage amount.
Receive Title to the Property - A warranty deed is given
to the buyer, signed by the seller.
Receive Keys to the Property - At the conclusion of the closing
process the buyer will be presented the keys to the home.
These keys should be temporary though. It is common practice
to replace all the locks on the home to prevent anyone with
duplicate keys from entering the home. The seller may also
provide the buyer with other documents such as instructions
and warranties for appliances and other major components that
are part of the home.
Record Legal Documents - The recording process is the final
step in the closing process. The escrow/closing company, attorney,
or title company that handles your transaction will complete
the recording. The process officially records certain documents
such as the warranty deed and the security instrument.
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Some Paper Work You Will Sign At Closing
On closing day, you will have a series of closing papers to
sign. It is important that you review each of these documents
with your real estate agent or attorney before signing.
Real Estate Settlement Procedures Act (RESPA) - Statement
that acknowledges that you have been informed about how the
closing process works, and that you fully understand all the
closing documents and financial obligations related to the
mortgage.
more RESPA info
Truth in Lending Disclosure Statement (TIL) - Final statement
that requires lenders to disclose all the actual terms and
conditions of the loan. The final disclosure statement makes
any corrections to the preliminary Truth in Lending Disclosure
statement you received when you applied for the loan.
HUD-1 Form (Settlement Statement) - Standard settlement statement
developed to comply with Real Estate Settlement Procedures
Act (RESPA). The form itemizes each payment made by the respective
parties in the transaction.
Detailed explanation of HUD-1 Form
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Mortgage Note - Buyer's commitment to repay the mortgage.
The note stipulates terms for the loan including the loan
amount, interest rate, address to send payments, maturity
date for mortgage, frequency of payments, and the change
dates for adjustable rate mortgages.
Security Instrument (Mortgage or "Deed of Trust")
- Pledge of the property as security for the loan. The document
stipulates the same basic debt information that is found in
the note and is recorded.
Warranty Deed - Legal document that transfers the title from
the seller to the buyer. The deed identifies the name of the
seller as the grantor and the name of the buyer as the grantee
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Paperwork For Local Authorities
Local laws and customs will determine whether or not other
documents will be used in your closing process. Some contain
information that by law you are required to receive. These
documents may require your signature to verify that you have
received, read, and understood the document. Below are some
of th more common documents used. Loan Application - Confirmation
that the information, such as your employment and marital
status, that was given when you first applied for the loan
has not changed.
Escrow Analysis - Lender provides a detailed itemization
of the escrow account used in servicing your loan.
Tax Authorization - Gives permission to your local real estate
taxing authority to send tax bills directly to your loan servicer
so that payments may be made from loan's escrow account.
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Post Closing Matters
After the closing, the majority of your work is over. Following
are some post closing matters that occur for many homebuyers.
Servicing Transfer Statement - Once you begin making your
monthly mortgage payments, you may receive a Servicing Transfer
Statement from your lender. The lender that sold your mortgage
loan may not necessarily be the lender that will be servicing
your loan. This Servicing Transfer Statement will indicate
that your loan has been sold. This simply means that your
lender has sold your mortgage loan to another lender. This
has no impact on your mortgage except that you will be paying
your monthly mortgage payments to another lender.
Mortgage Payment Adjustments - Periodically your loan servicer
will send you a new statement showing the payment due for
each billing cycle. This amount may go up or down depending
on several factors. For example, if the local property tax
rate has been raised, the payments may be increased to maintain
sufficient funds in the escrow account.
Homeowner's Association Fees - If the property you purchased
is part of a Homeowner's Association (HOA), you will need
to inform them that you are the new owner of the property.
Most Homeowner's Associations require you to pay a fee. The
fee is usually collected monthly or quarterly and usually
covers trash pickup, snow removal, maintenance of common areas,
and use of community facilities.
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