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The Closing Process

What is “Closing”?

Also referred to as “settlement,” closing is the time when the title to your new home is formally transferred to you and your lender provides the mortgage money to the sellers.

The Process

Closing begins the moment you sign the purchase contract. It ends a month or two down the road with a closing meeting. Throughout the process, you’ll sign papers on your loan, pay fees, taxes, and service charges to finalize the sale, and ultimately receive the keys and deed to your new home.

Costs

Costs for closing can range anywhere from 2% to 6% of the purchase price, so you’ll need to be sure you budget for these costs when you decide to purchase your home.

Who Is in Charge?

A professional settlement agent conducts a closing. He or she files documents, pays taxes on your behalf, and ensures every task is done and recorded within specific deadlines so the transaction is legal. The settlement agent is impartial – he represents the buyer, seller, and lender equally.

What Is a “GFE”?

In every state, the lender or lending institution is required to give a binding Good-Faith Estimate (GFE.) The GFE is actually a list of the estimated closing costs that are involved in a mortgage transaction. These include the lender’s charges as well as the fees that are charged by a local closing agent. It also accounts for the real estate property tax and homeowner’s insurance.

Buyer, Beware!

Closing costs vary widely. Potential buyers must look around for the most reasonable rate and budget these expenditures into their home ownership costs.

What to Bring to Closing

Your mortgage loan and title company representative typically provide you with a list of precisely what you’ll need to bring to the closing table, and the list of items needed will be somewhat different for sellers than it is for buyers.

Buyers typically need to bring:

  • A government-issued photo ID, such as a driver’s license
  • Certified or cashier’s check for the closing costs that you’ll owe – made out to the title or closing company
  • Any outstanding documents or paperwork that you have not yet provided to the title company or mortgage loan office

Sellers typically need to bring:

  • Copies of all of the keys to the home
  • Garage door openers
  • Codes for keyless entry to the home or alarm system
  • Certified or cashier’s check made out to the title or closing company, if these costs are not being deducted from the sales price
  • A government-issued photo ID, such as a driver’s license

Confirm the location of your closing meeting with the mortgage loan officer. Some mortgage lenders conduct closings in their own office, while other lenders have the title company or a real estate attorney conduct the closing at their locations.

The Process

The most common type of closing has both the sellers and the buyers of the home sitting at the closing table. A closing agent from the title or closing company is also present to guide all of the parties through the closing process. Closing on a home requires a lot of signatures on many legal documents, by both buyers and sellers.

The bottom line is that the paperwork you sign here ultimately transfers ownership of the home from the seller to you. For the buyer, the closing also involves signing the promissory note and mortgage documents. These documents have you acknowledge that you owe the mortgage company the agreed-upon amount for the mortgage. After all is signed and checks are collected, the closing agent will make copies of all of the documents that pertain to you.

The seller then hands over the keys, garage door openers, and any other access information to the buyer, and the deal is done. The buyer is now the proud owner of the home. The seller walks away with a check for the profit of the home sale and everyone walks away from the closing table with what they came to receive. Mission accomplished!

After Closing

Once you’ve purchased your new home, the mortgage is acquired, the bills are paid, and you have the keys and deed in your possession, there are just a few more steps needed to complete the process.

Understanding Your Mortgage

It is critical that you understand every aspect of your mortgage and monitor what is happening with your loan.

Lender vs. Agency

It is not uncommon for your original lender to sell your mortgage loan to an outside mortgage servicer. This service agency could be another lender, a bank, or an investor. Be prepared for the fact that you may not be dealing with the lender or loan officer with whom you negotiated your loan forever. This is a good reason to know (and ask questions about) all of the terms and conditions.

Keep Track of Payments

Keep copies of all paperwork relating to your mortgage payments in case of a discrepancy, and maintain a regular schedule of payments. Consider arranging for your mortgage payments to be withdrawn automatically each month from your account. This also gives you a system of checks and balances. Watch your payments for changes in tax and insurance costs – which usually occur at the beginning of a new calendar year.

Making Extra Payments

Paying ahead or “prepaying” is an excellent way to save money, build up your homeowner’s equity, and pay off your mortgage faster. Prepayments are applied to the principal of your loan. For example, if you pay off an extra $100 per month on a $160,000 mortgage, you could save more than $43,000 in interest over the life of the loan. This would also shorten your mortgage by more than six years! Some couples budget to make thirteen payments in twelve months and this can make a huge difference.

Missing Payments

The flip side of the above scenario is that situations may arise that could cause you to miss a payment. Let your lender know! Many lenders will understand and be able to work with you to create a repayment schedule or adjust the terms of your loan.

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