Closing The Sale
The mortgage loan closing (or settlement) is the formal meeting at which the buyer takes 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 the buyer's 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, the buyer will be required at that time to review and sign various documents relating to the mortgage loan and to pay closing costs
What Happens at the Closing Meeting
1. First, the closing agent reviews the settlement sheet with buyer and the seller and answers any questions. Both buyer and the seller sign the settlement sheet.
2. The closing agent then asks the buyer 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 requested.
3. If everyone agrees that the papers are in order, the buyer submits a certified or cashier's check to cover the closing costs and the balance of funds due (if applicable). The closing agent disburses funds to the seller.
4. If the lender will be paying the buyer's annual property taxes and homeowner's insurance then a new escrow account (or reserve) is established at this point.
5. The buyer receives the keys to their new home.
6. After the meeting, the closing agent officially records the mortgage and deed at the local government clerk's office or registry of deeds.
Closing Documents You 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 buyer and seller. Buyer and Seller should have been allowed the opportunity to review this form on the business day before the closing meeting so that both will know the closing costs in advance.
Truth-in-Lending (TIL) Statement: Within three business days of applying for a loan to purchase a home, buyer's lender should have given the buyer this document, which outlines the costs of the buyer's loan. 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 the buyer's 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 the buyer's 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 the buyer fails to make the monthly payments and warns that the lender can "call" the loan (require full repayment before the end of the loan term) if the buyer violates the terms of the note or mortgage.
Mortgage: The mortgage is the legal document that secures the note and gives the lender a legal claim against the property should the buyer default 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 the buyer's 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 the buyer consistently fails 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.
Deed: The Deed is the document that transfers ownership from the seller to the buyer. At the closing, the buyer will receive a copy of the deed. After the agent records the deed with the buyer listed as the new owner, the deed will be sent to the buyer.