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Closing a Mortgage Loan and Costs Involved

After you find a home, have an offer accepted, get your loan application approved and receive a commitment letter from your lender, you still have some more steps to take before you own your new home. The closing process is another stage in the home buying process.

Until the closing of the mortgage loan and the legal property title is transferred, you have no rights to the property, including access.

The length of the closing process may vary, but typically windows of time are allotted for inspection contingencies (10-14 days) and financing contingencies (30 days). Commonly, escrow periods last 45 days. However, the length of escrow can be longer or shorter, depending on the circumstances. For example, in a seller’s market, buyers may be asked to fulfill their contingency requirements in less time.

During the closing process:

• The mortgage loan documents will be signed.
• The deed of the property will be completed.
• Funds included in the mortgage loan costs will be collected and disbursed.
• The necessary paperwork and transfers will be completed to give you ownership.

Since the closing of a mortgage loan is a legal process, the procedures and requirements may vary from state to state. However, a general description of the closing process may still offer you some guidance.

Setting a Final Date for Closing The Mortgage Loan

Once the approval letter is received from the lender, a firm date must be set for the final loan closing. This date must allow for necessary documentation and repairs to be completed, but also must be set before your loan commitment expires.

Most lenders will require a three to five day advance notice in order to prepare the mortgage loan documents and get them to the closing agent.

Acquiring the Proper Documentation

The mortgage loan closing process involves a lot of paperwork. Below is a list of documents typically required during the closing process:

• Title Insurance Policy : Title insurance is required by every lender to ensure that no legal documentation (including a lien or faulty title) will prohibit you from receiving clear ownership of the property.
• Homeowner’s Insurance : While the lender may specify requirements for homeowner’s insurance, you can select any insurance carrier that meets these requirements.
• Termite Inspection and Certification : Many states and lenders require proof of a termite inspection.
• Property Survey : Your lender may require a survey of the property.
• Water and Sewer Certification : This documentation is only necessary if property is not served by public water and sewer facilities.
• Flood Insurance : This is typically needed if the property is within a defined flood plain.
• Certificate of Occupancy/Building Code Compliance : A certificate of occupancy is needed for new homes and building code compliance would be needed for homes that have already been lived in. This is to ensure that the structures meet current building code requirements.
• Other Documentation : Additional documentation may be required.

Completing the Closing Process

In a nutshell, your role in completing the closing process is to review and sign the numerous documents associated with a mortgage loan. The closing agent (and/or your attorney) should explain the nature and purpose of each one and give you an opportunity to review them before signing. Some of the major documents needed when closing a mortgage loan include:

• Settlement Statement – HUD-1 Form
• Truth-in-Lending Statement (TIL)
• Mortgage Note
• Deed of Trust
• Miscellaneous Documents

The Cost of Closing a Mortgage Loan

When selecting a lender, you will receive a good faith estimate for the costs required when closing a mortgage. Because the exact amounts of these costs can vary, consider these costs in addition to the interest rate of the mortgage loan.

Typically, the closing costs of a mortgage loan are between three and five percent of your total mortgage cost. For example, for every $100,000 that you are borrowing, you can expect your closing costs to be about $3,000 to $5,000.

To make sure that a lender is not intentionally listing a good faith estimate much lower than the real costs, get good faith estimates from two to three lenders.

Below is a list of some of the items you can expect to see on a good faith estimate for the closing cost of a mortgage loan:

• Lenders Fees may include origination fee (one percent of loan amount), appraisal fee, credit report, underwriting fee, document preparation fee, tax service fee and mortgage insurance.
• Title Charges may include title insurance, transfer tax, recording tax and attorney fees.
• Prepaid Expenses may include Homeowner’s insurance, real estate taxes and prepaid interest (interest that will accrue between date of closing and the end of the month).
• Miscellaneous Charges may include property survey and pest inspection.

Other fees may appear on the closing cost list. Speak to your realtor or closing agent for more information. Remember, if you get several good faith estimates (as recommended above), you will be able to get the full scope of closing costs. Educate yourself and be prepared before you start the home buying process. By doing this, you will save yourself from being overwhelmed by the true cost of a mortgage loan.