Closing on a home is an exciting milestone, but it can also be a bit overwhelming with the numerous documents you'll encounter at the closing table. Each piece of paper serves an important purpose, from transferring ownership to safeguarding your rights as a new homeowner. Here's what you need to know about the 7 key documents you're likely to sign during the home closing process:
Mortgage Note
The Mortgage Note is essentially your IOU to the lender, detailing how much you’re borrowing, the interest rate, the term of the loan, and your repayment schedule. Here’s what it includes:
- The loan amount
- Interest rate
- Amortization schedule
- Default conditions
- Prepayment penalties, if any
Mortgage or Deed of Trust
The Mortgage or Deed of Trust secures the loan by giving the lender a claim against your property should you fail to repay the loan. Here are the key aspects:
- Legal description of the property
- Details of the lender and borrower
- Conditions for acceleration and foreclosure
⚠️ Note: The difference between a Mortgage and a Deed of Trust depends on state laws; a Deed of Trust often involves a trustee.
Deed
The Deed is the document that transfers ownership of the property from the seller to the buyer. It includes:
- Names of the parties involved
- Description of the property being transferred
- Granting clause
- Notarization
Closing Disclosure
The Closing Disclosure outlines all the final details of your loan terms and the closing costs. This document is provided at least three business days before closing. Key points include:
- Loan terms
- Projected payments
- Closing costs
- Loan costs
- Other fees
- Cash to close
Loan Application (Form 1003)
Although you may have submitted this form earlier, you might need to sign a revised one to confirm your loan information or to add any last-minute changes. Here’s what to expect:
- Personal information
- Employment information
- Financial information
- Loan details
Notice of Right to Cancel (For Refinances)
If you’re refinancing or taking out a second mortgage, the Notice of Right to Cancel provides you with a three-day window to rescind the transaction. It includes:
- The right to rescind
- The effect of the rescission
- How to exercise the right
ℹ️ Note: This right to cancel does not apply to primary mortgage transactions for buying a home.
Insurance and Escrow Documents
These documents ensure you’re covered and that necessary funds are set aside for future payments. They typically include:
- Homeowners Insurance Policy
- Flood Insurance, if applicable
- Escrow and Proration Statements
The Final Walkthrough and Inspection isn't a document per se, but it's a crucial step where you ensure the property's condition before closing. Here are things to consider:
- Check for repairs agreed upon in the contract
- Verify that the property is in move-in condition
- Confirm any inclusions or exclusions in the sale
Closing on your new home is a monumental step towards homeownership. Being well-informed about the documents you'll sign ensures a smoother, more confident closing experience. These documents not only legally bind you to your new home but also provide necessary protections for both you and the lender. Remember, while these are the core documents, additional paperwork might be required depending on the specifics of your transaction and local regulations. Keep an open dialogue with your real estate agent, title company, and lender to clarify any uncertainties before the big day.
What is the difference between a Mortgage and a Deed of Trust?
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A Mortgage involves two parties (the borrower and the lender), while a Deed of Trust involves three (the borrower, the lender, and a trustee who holds the property title until the loan is paid off). The key difference lies in the foreclosure process, which can be faster with a Deed of Trust due to the trustee’s power of sale.
Can I review these documents before closing?
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Absolutely. In fact, you should review them. Key documents like the Closing Disclosure must be provided to you at least three business days before closing for review. Ensure you go through these documents with your real estate agent or attorney to fully understand the terms and conditions.
What happens if I find an error on a closing document?
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Communicate the error immediately to your lender or real estate attorney. Most mistakes can be corrected before closing. If significant errors are not fixed, you have the right to delay or cancel the closing until issues are resolved.
Do I need a lawyer at the closing?
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While not always mandatory, having a lawyer at closing can provide legal oversight and ensure your interests are protected, especially if there are complex issues or local laws to navigate.
What if I can’t close on the agreed date?
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Closing dates can be rescheduled if necessary, but this should be done in consultation with all parties involved, including your lender, the seller, and the title company. Delays might incur fees or could potentially impact your interest rate or mortgage terms, so plan accordingly.
