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What is Closing
What happens at the closing meeting
Documents you will receive

What is Closing

The mortgage loan closing (or settlement) is the formal meeting at which you take official ownership of the property.

At closing, the buyer requires that the seller prove the title (ownership) is complete and free of anyone else's claims. Technically, two separate closings occur at this time: the closing of your loan and the closing of the sale.

The closing meeting is typically attended by the buyer and seller (and their attorneys if they have them), both real estate sales professionals, a representative of the lender, and the closing agent. The meeting takes about an hour and is usually held at the closing agent's office. In addition to a number of other activities, you'll be required at that time to review and sign various documents relating to the mortgage loan and pay closing costs.

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What Happens at the Closing Meeting

1. First, the closing agent reviews the settlement sheet with you and the seller and answers any questions. Both you and the seller sign the settlement sheet.

2. The closing agent then asks you to sign the other loan documents, such as the mortgage note and Truth-in-Lending statement. If it wasn't previously given to the lender, evidence of required insurance and inspections is also presented.

3. If everyone agrees that the papers are in order, you (and the seller) submit a certified or cashier's check to cover the closing costs and the balance of funds due (if applicable). And, the check from the lender covering the mortgage amount is submitted to the closing agent.

4. If the lender will be paying your annual property taxes and homeowner's insurance for you, a new escrow account (or reserve) is established at this point.

5. You receive the keys to your new home.

6. After the meeting, the closing agent officially records the mortgage and deed at your local government clerk's office or registry of deeds. This legal transfer of the property may take a few days. The closing agent usually will not disburse the funds to everyone who is owed money from the sale until the transaction has been recorded. It is at the point of deed recordation that you become the official owner of the home.

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Closing Documents You Receive

You will receive a number of important documents at the closing meeting. Review the list below before you go to the closing table to prepare for the documents that you'll receive.

  • HUD-1 Settlement Statement: The settlement sheet itemizes the services provided and lists the charges to the buyer and the seller. It is filled out by your closing agent and must be signed by both you and the seller. You should have been allowed to review this form on the business day before your closing meeting so that you will know your closing costs in advance.
  • Truth-in-Lending (TIL) Statement: Within three business days of applying for a loan to purchase a home, your lender should have given you this document, which outlines the costs of your loan. You receive it at that time so that you may compare the loan costs with those of other lenders. The TIL statement also discloses the annual percentage rate, or APR, which is the cost of your mortgage as a yearly rate. This rate may be higher than the interest rate stated in your 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 your loan application will change at closing.
  • The Note: The mortgage (or promissory) note is a legal "IOU" and represents your promise to pay the lender according to the agreed terms of the loan, including the dates on which your mortgage payments must be made and the location to which they must be sent. The note also details the penalties that will be assessed if you fail to make your monthly payments and warns that the lender can "call" the loan (require full repayment before the end of the loan term) if you violate the terms of your note or mortgage.
  • Mortgage: The mortgage is the legal document that secures the note and gives the lender a legal claim against your house if you default on the note's terms. In effect, you have 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. If you consistently fail to meet these requirements, 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.
  • Affidavits: Ask your lender whether you'll be required to sign any affidavits. For example, you and the seller may need to sign an affidavit that states that you will use the property as a principal residence, or that all of the improvements to the property that were required in the sales contract were completed before closing.
  • Deed: Only the seller signs the deed at closing. It is the document that transfers ownership from the seller to you. At the closing, you'll only receive a copy of the deed. After the agent records the deed with you listed as the new owner, the deed will be sent to you.
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