Mortgage Loan Closing Process
What is the procedure at the loan closing?
The loan closing is a process of finalizing the sale and the loan. The seller, buyer and lender (generally with the aid of anescrow agent) execute the final documents. You will receive a commitment letter from the lender once the loan application has been approved.
- Once you have the loan commitment letter, you can set a settlement date for the closing
It is important that the settlement take place before your “rate lock period” expires. A rate lock is a commitment by the lender to hold a promised interest rate and points for you for a specified period of time. Although longer rate lock periods generally cost more, there are other ways to influence your interest rate.
It is also important to have any final inspections done before this set settlement date, especially if any repairs or maintenance are part of the purchase agreement.
- You should be prepared at the closing to pay the down payment and any closing costs applicable to the buyer.
Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to give the buyer a TIL to Loan Estimate of closing costs within three business days of receiving the loan application. This estimate lists the costs that the buyer is likely to pay at the settlement.
For the actual closing costs, you have the right to request to see The Closing Disclosure (the prescribed form from the U.S. Department of Housing and Urban Development) one day before the actual settlement. The escrow agent fills out the Closing Disclosure. Prior to the closing, you should review all items on the settlement statement and all documents that you will need to sign in order to clarify any misunderstandings.
- All participating parties will sign the necessary documents at the closing. Make sure you understand what you are signing. Some of the documents are:
The Closing Disclosure
This statement must be signed by both the buyer and the seller.
- The Deed
The deed is the legal document that transfers title to real property. The deed should contain an accurate description of the property, be signed and witnessed according to the laws of the state where the property is located, and should be delivered to the purchaser (after the agent officially records the deed).
- The Mortgage
The mortgage is a lien on the property that gives the lender the right to foreclose on the property if you default on the loan.
- A Deed of Trust
A deed of trust is a document used in some states instead of a mortgage, that transfers legal title of the property to the trustee until the loan is paid off, giving the trustee the power to sell the property to satisfy the debt in the case of default on the loan.
- The Note
The note is the legal debt document and a promise to pay according to the terms of the loan.
- The Loan Estimate and Closing Disclosure
The Loan Estimate and Closing Disclosure is a mandated if there have been any changes in loan terms since the loan application. It must disclose the terms of the loan, the interest rate, the loan amount, the annual percentage rate and the total payments required.
- The Initial Escrow Statement
The initial escrow statement lists the estimated costs to be paid from the escrow for the ensuing year, the escrow payment amount and any required cushion.
- The Mortgage Servicing Disclosure Statement
The mortgage servicing disclosure statement tells the borrower whether the lender will be servicing the loan or transferring it to another lender. It is important to know when your first payment is due and where it should be made.
After the escrow agent properly records all the documents, you may take possession of your property according to the settlement agreement.