Few steps in buying a home are as stressful as the closing process. While some jurisdictions refer to the closing process as “settlement” or “escrow,” it’sessentially the same wherever you go: that pivotal moment when all parties meet and the closing agent transfers ownership of a home from seller to buyer,and all the money required to make that happen changes hands.
And if you are taking out a mortgage, your lender will no doubt be involved in the closing process, too.
So what can go wrong that could stall this process? A whole lot, if you aren’t prepared! Your real estate agent should help you through this process, especially if you are a first-time home buyer. You can never be too well-prepared, however, which is whywe’re layingout what steps you can take to avoid anylast-minute snafusand cross the finish line into your new home.
Step No. 1: Be mindful of your credit score
Even thoughyou were probably approved for amortgage a month or moreearlier, changes to your financial profilecan negatively affect yourcredit scoreand, consequently, lead to complications at closing. Changing jobs, applying for a credit card, buying a car, falling behind in paying bills, or even getting sudden infusions of cash can red-flag your deal.
If your credit score drops,yourlender could increase your interest rate or potentially even withdraw your loan offer.So avoid making any sudden financial moves in the weeks leading up to closing. Got it?
Step No. 2: Review your closing disclosure form
At least three days before settlement, you’ll receive a closing disclosure, or CD, from your lender. This pre-closing document outlines your exact mortgage payments, loan terms (e.g., the interest rate, length of the loan), and what you’ll pay inclosing costs, which run anywhere from 2% to 7% of the home’s sales price. For certain types of mortgage loans, such as a manufactured home loan not attached to real estate, you receive a Truth in Lending disclosure, instead of a closing disclosure.
When you receive the closing disclosure, compare the information on it to what’s on your loan estimate. (That’s the document you received when youwere pre-approvedby your lender.) Don’t hesitate to ask your loan officer to explain any discrepancies.
“The loan estimate is an estimate, meaning the numbers can change,” saysJoe Parsons, a senior loan officer at PFS Funding in Dublin, CA. However,you’ll want to know why and make sure they were necessary and not just oversights.
You should also confirm the mortgage rate on your adjustable-rate or fixed-rate mortgage loan, your loan amount and monthly payments, and any other agreed-upon terms before loan closing.
Step No. 3: Get title insurance squared away
When you buy a home, you “take title” to the property—meaning that you become the rightfulowner. This ensures that no one else canclaim full or partial ownership of the home in the future.This is important not only to you, but also to your lender—which is why it’ll require that a title company conduct a search of public recordsfor any long-lost heirs insistingthe property is theirs, liens (from contractors who worked on the home but were never paid), orother problems.
If all goes well, your title will be cleared and the lender will process the loan. But just in case it doesn’t, the lender will require that you buy title insurance, a policy that will payfor the expense of researching any claims and court coststhat could crop up in the future.
Additionally, your title company will offer you owner’s title insurance, which isn’t typically required but often recommended, becauselender’s insurance won’t protect you personally. To cut costs, look into whether you areeligible for a “reissue” rate on the policy currently in effect, which wouldoffer a substantial discount.
Step No. 4: Bring the necessarydocumentation
When you go to closing, make sure you have the following items, unless you have provided it ahead of time:
- Proof ofhomeowner insurance
- A copy of your contract with the seller
- Your home inspection reports, anything the bank required to approve your loan
- A government-issued photo ID (Note to newlyweds who just changed their name: The ID needs to match the name that will appear on the property’s title and mortgage.)
Your real estate agent or closing agent may also ask for other documentation.
Step No. 5: Provide the rest of the down payment
You’ll already know from your disclosure form how much you need to cough up for the remainder of the down payment and the closing costs. (Note: Yourearnest money depositgoes toward the amount you owe on the closing date.)
Because you can’t use a personal check, you can either request that your bank wire the money or bring a cashier’s check to closing. (Ask thesettlement agent companyif it hasa preference.) If you plan to wire the money, talk to your bank a couple of days before closing to confirm the transfer.
Get ready to sign alotof paperwork
Be prepared for a hand cramp—you’ll be putting your John Hanco*ck on a stack of legal documents, including forms for transfer of title, deed of trust, bill of sale, and transfer tax declarations. You should budget at least two hours for closing.Once you’re finished with the closing process, you’ll receive copies of the paperwork and, in most states, the keys to your new home.
Determine your mortgage payment plan
Your closing costs typicallyinclude your first month’s mortgage payment, meaning you have alittle time to plan how you’re going to make your future payments.You’ll receive a payment coupon book (either on closing day or in the mail shortly after), which you can use to payyour mortgage premiums by snail mail if you so choose (retro, right?). Or, you can decideto pay your bill online. If you wantpeace of mind that you’re not going to miss a payment, you can set up automaticpayments.
