What to Expect
Purchasing a home is a great investment. The closing, or settlement as it’s called in some states, is one of the most important parts of the process. This is when you legally commit to your mortgage loan. Here’s a rundown of items to help you know what to expect and how to prepare.
Key Steps to Getting the Keys
Key steps that you will need to complete during your transaction.
Learn about loan options and get a mortgage pre-approval
The kind of mortgage you choose has a big impact on how much you end up paying, including how much you’ll have to pay upfront, your monthly payment amount and the total cost of your loan over time. It also affects the level of risk you take on. Knowing what kind of loan is most appropriate for your situation prepares you for talking to lenders and getting the best deal. Most first-time buyers need to finance their home purchase, and a consultation with a mortgage lender is a crucial step in the process. Find out how much you can afford before you begin your home search.
Find a property
Real estate agents and many online and print sources provide information on homes for sale. Educating yourself about the area in where you wish to buy can help you narrow your priorities and make an informed decision about which home to choose.
Make an offer
A proposal to buy a property includes both the price and terms. In a typical situation, you will complete an offer sheet that the real estate agent will present to the owner and the owner’s representative. The owner, in turn, may accept the offer, reject it or make a counter-offer.
Sign the Purchase Agreement
Having the seller accept your offer is a great feeling. After your offer is accepted, you will sign the purchase agreement, which is an agreement containing all the details of the purchase. While not required, you may want an attorney to review.
The cost of financing your home purchase is usually greater than the price of the home itself (after interest, closing costs and taxes are added). After comparing loan options and selecting the best option for you, the next step is to tell the loan officer you want to proceed with that mortgage application. This is called expressing your intent to proceed. Lenders have to wait until you express your intent to proceed before they require you to pay an application fee, appraisal fee, or most other fees.
Most lenders require you to pay a year of premiums up front for homeowner’s or property insurance. If your loan includes an escrow/impound account, the account will be set up for you to make monthly payments toward your future taxes and insurance on the property.
Don’t forget to make the smart choice and purchase an owner’s title insurance policy and protect your financial investment. For a one-time fee, an owner’s title insurance policy provides coverage for as long as you own your home.
Close the Transaction
Once you’ve decided to move forward with the purchase of your home and have funding in place, you are ready to shop for the closing agent who gathers all the legal documents, closes the loan and handles the money involved in your purchase.
In most of the country, a title or settlement agent handles your closing.
During the closing, or settlement as it may be called, you will sign many documents. Some key documents that you will sign include:
Promissory note: This document is your promise to repay the loan (mortgage) to your lender. The note provides details regarding your loan, including the amount you owe, the interest rate of the mortgage loan, the dates when the payments are to be made, the length of time for repayment and the where the payments are to be sent. The note also explains the consequences of failing to make your monthly mortgage payments.
Mortgage: This document, which may also be called a Security Instrument or Deed of Trust, transfers legal ownership of the property with the condition that the lender may foreclose on your home if you fail to repay your mortgage. This document restates the basic information included in the Promissory Note, as well as explains your responsibilities and rights as a borrower.
The Basic Steps at Closing
Closing the real estate transaction is basically the investigation made or actions taken by either a title agent or title attorney before the actual issuance of the title policy. There are five basic steps that usually followed in somewhat the same order in every real estate transaction. Although it is not the job of the title agent or title attorney to cure defects in or problems with the title to the property or perform escrow or other services outside of closing the transaction, title agents and title attorney help in these matters on a somewhat regular basis.
Starting the process
A sales contract is signed by the buyer and seller and delivered to the closing agent, usually with a deposit check. The escrow is accepted by the escrow agent, usually by written notation on the contract. The escrow agent starts the closing process by opening a title order. The file begins to be processed. Tax information, loan payoffs, survey (if necessary), homeowner/maintenance fees, inspections/reports, and hazard and other insurances as well as legal papers are ordered. A title search is ordered.
Title search and examination
This is a search made of the public records. Records searched include deeds, mortgages, paving assessments, liens, wills, divorce settlements and other documents affecting title to the property. Title examination is the examination of the documents found during the title search that affect the title to the property. This is when verification of the legal owner is made and the debts owed against the property are determined. Upon completion of the search and examination, a title commitment/preliminary report is prepared and reviewed and sent out to interested parties.
Document preparation and/or request to produce
The closing agent reviews the new lender's instructions/requirements, reviews instructions from other parties to the transaction, reviews legal and loan documents, assembles charges, and prepares closing statements and schedules the closing.
Settlement/closing the transaction
Escrow/settlement agent oversees closing of the transaction. Seller signs the deed and closing affidavit. Buyer signs the new note and mortgage. The old loan is paid off. Seller, real estate professionals, attorneys and other parties present at the closing of the transaction are paid.
After the signing has been completed, the escrow/settlement agent will forward payment to any prior lender, and pay all parties who performed services in connection with your closing (if they have not been paid). The transaction documents are recorded in the county in which the property is located. Title insurance policies are prepared and sent to the new lender and to you. This all happens without any further actions by the buyer or seller.