What to Expect When Closing on a Home

November 28, 2016

You’ve found your perfect home, you’ve qualified for a mortgage to buy it and it’s passed inspection by a qualified home inspector. Now it’s time to sign on the dotted line. A closing is the last step in buying and financing real estate.

If you are buying a home for the first time, you’ll be in for a surprise. There’s a lot more to do in order to cross the finish line. Here’s how to make sense of the process:

Your lender will ask for a lot of documentation

Your mortgage lender has given you approval for your loan, conditional on you documenting your income and assets. Be prepared to submit:

  • Tax returns
  • Account statements
  • Pay stubs
  • Documentation of the sources of recent, large bank deposits

Your lender is likely to have a “trust but verify” attitude towards your documents. They want to see everything. Make sure you include every page, including the mysterious “this page left intentionally blank” one that you think doesn’t matter. Lenders typically run an additional credit check on borrowers right before closing date, so make sure you don’t do anything which could jeopardize your loan, such as opening a new credit card, taking a car loan or switching jobs.

You’ll need homeowner’s insurance

You will need to give proof of your new homeowner’s insurance policy to your lender, so start shopping around. Ask your real estate agent for suggestions on insurance carriers if you are new to the process. Make sure to get at least three written quotes before you decide on a policy. For more tips on shopping for a homeowner’s policy, see this blog post. FYI, if you live in a flood or earthquake zone, those aren’t included in a traditional policy, so decide if you need flood insurance or earthquake insurance.

You can’t bring cash to a closing

The cash you need to close can’t actually be paid in large bills.  Make sure you receive and understand the written instructions on whether to bring a cashier’s check or plan for a wire transfer of funds on the closing day.

Review your loan estimate

It’s up to you to understand the terms of the loan agreement you’ll be signing. Your lender will send you a loan estimate. Review this very carefully and make sure that the written terms of the loan match what you’ve discussed. You can use this guide from the CFPB as a framework. Be proactive about asking your lender questions if there are differences in what you have discussed and the loan estimate terms.

You can shop around for closing service providers

Closing costs can be expensive, especially costs relating to title. Not all of them are fixed, however. You can shop around for services in section c of your loan estimate (“Services You Can Shop For”):

  • Title costs, including insurance, title search and settlement agent
  • Pest inspections
  • Survey

Receive a closing disclosure and other key documents

Your lender is required to give you a closing disclosure statement three business days prior to your closing. Use this checklist as a guide to double check that all the details on the closing disclosure are correct. If you find that something isn’t correct, contact your lender immediately and ask for an explanation.  Ask for your other closing documents in advance in order to review them:

  • Mortgage (also called security instrument)
  • Promissory note
  • Initial escrow disclosure
  • Right to cancel form

You may want to consider hiring a real estate attorney to review your documents before closing.

Take a final walk through

The last step before you start signing paperwork is to take a walk through the home with your real estate agent to make sure the home is still in the same condition it was when you made your initial offer. Make sure that everything that the seller agreed to repair is repaired and that items they agreed to leave in the home (such as a washer/dryer, air conditioners or curtains) are still there. If there are big problems, this could potentially push back the closing or even void the deal. See this article for more walk through tips.

Don’t sign anything you don’t understand

Read everything you’ll be signing and ask questions about things that don’t seem clear or seem different from what you expected. This is the step that many homeowners skip and later regret. Remember, it’s up to you to understand the legal documents you are signing. Use the CFPB’s closing checklist for things to review before, during and after your closing. Don’t sign anything until you are comfortable that it’s correct!

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.