What to Expect at Closing
The last step in a real estate transactions is the closing. To help you better understand the process, below is a summary of what happens during and after a closing, a description of all the closing costs, and an explanation of some of the documents presented at the closing.
The closing meeting is where ownership of the home is officially transferred from the seller to the buyer. The buyer chooses the closing agent who they want to represent the closing. The buyer's closing agent coordinates all of the document signing and the collection and disbursement of funds. Your main role at the closing is to review and sign the numerous documents related to the mortgage loan and to pay the closing costs.
The closing is a formal meeting typically attended by the buyer(s) and the seller(s) (and their attorneys if they have them), both real estate sales professionals, a representative of the lender, and, of course, the closing agent. The meeting takes about one hour and usually is held at the closing agent's office.
The steps below explain what happens during and after the closing meeting:
You will receive a number of important documents at the closing meeting. Review this list of documents before you go, so that you'll know what to expect when you're there.
The settlement sheet itemizes the services provided and lists the charges to the buyer and the seller. It is filled out by the closing agent and must be signed by both they buyer and the seller. You should have been allowed to review this form on the business day before your closing meeting so that you will be able to know your closing costs in advance.
Truth-in-Lending (TIL) Statement
Within three business days of applying for a loan to purchase a home, the buyer's lender should have given the buyer this document, which outlines the costs of the new loan. It is provided to compare the loan costs with percentage rate (APR). The APR is the cost of your mortgage as an annual percentage rate. This rate may be higher than the interest rate stated in the mortgage because the APR includes any points, and certain other costs of credit. The TIL statement also discloses the other terms of the loan, including the finance charge, the amount financed, the payment amount, and the total payments required.
It is possible that the APR calculated at the loan application will change at closing. That is why the lender is required to provide the final version of the TIL statement at or prior to the closing meeting.
The mortgage (or promissory) note is a legal "IOU." The note represents they borrower's promise to pay the lender according to the agreed terms of the loan, including the dates the mortgage payments must be made and the location to which they must be sent.
The note also details the penalties that will be assessed for failure to make the monthly mortgage payments. It also warns that the lender can "call" the loan (require full repayment before the end of the loan term) if the terms of the note or mortgage are violated.
The mortgage is the legal document that secures the note and gives the lender a legal claim against the house if the borrower defaults on the note's terms. In effect, the buyer has possession of the property, but the lender has an ownership interest (called an "encumbrance") until the loan has been fully repaid.
The mortgage restates the basic information found in the note. It also states your responsibilities to pay principal and interest, taxes, and insurance on time; to maintain hazard insurance on the property; and to adequately maintain the property and not allow it to deteriorate. Failure to meet these requirements means the lender can demand full payment of the loan balance or foreclose on the property, sell it, and use the proceeds to pay off the outstanding loan and the foreclosure costs.
In some states, a "deed of trust" is used instead of a mortgage. By signing a deed of trust, they borrower receives title to the property but conveys title to a neutral third party (called a trustee) until the loan balance is paid.
You may be asked to sign numerous affidavits. For example, they buyer may be required to sign an affidavit of occupancy, which states they will use the property as a principal residence. The buyer and the seller may need to sign an affidavit that states all of the improvements to the property that were required in the sales contract were completed before closing.
Only the seller signs the deed at closing. It is the document that transfers ownership from the seller to the buyer. The buyer's name and the names of any other buyers appear on the deed. The buyer receives a copy of the deed at the closing. The closing agent then records the deed with the buyer listed as the new property owner. The deed will be sent to the buyer after it is recorded.
Closing costs are a part of all loans and are normally the buyer's costs. These are the costs for things like official documents. In the case of Conventional and FHA loans, closing costs may be paid by the seller. If the buyer has a VA loan, the seller may pay closing costs as well as prepaid expenses. Sales contracts should be explicit in stating what charges each party will pay. As required by the Real Estate Settlement Procedures Act (RESPA), the buyer and seller will be given an opportunity to see the "settlement statement" at least once prior to closing. This statement will show all costs for both buyer and seller.
Some Typical Closing Costs Include: