What Happens at Closing?
What Happens at Closing?
Closing is the final step in the process of purchasing and financing a home. Once you've signed the contracts and made the required payments, the home will officially be under your name. From that point on, you'll make monthly payments until the mortgage is finally paid off.
Depending on the lender and the state you live in, the closing process can include participation from the following entities:
Once it's time to close on your home loan, here's what you can expect:
You'll review and sign contractual documents
Obtaining a mortgage comes with its fair share of paperwork. There are documents that every borrower needs to sign at closing, many of which are required by federal law. These documents help protect your rights and the rights of other parties involved. As a borrower, it's important to thoroughly review these documents so that you're well-aware of your mortgage's terms and conditions. One little misunderstanding or oversight in the closing process can lead to serious trouble and frustration down the road.
Here are some common closing documents for you to familiarize yourself with:
The closing disclosure will show you the final terms of your loan. It will detail the exact closing costs and who these payments are directed to. This document will be provided to you by the lender at least three days before your closing date.
The promissory note will list out exactly what you are agreeing to when you close on the mortgage. How much do you owe in total? What will be the interest rate on your loan? What dates will you make payments? Where will you send those payments? All of those details, among many others, will be located in this document.
The state and local government-mandated documents will ensure that you understand your rights under the laws and regulation and that your lender is complying with mortgage industry regulations.
The mortgage or security instrument will confirm your rights and responsibilities as a borrower and will provide the lender with the ability to foreclose on your home if you do not meet the terms of the loan transaction.
You'll make a down payment
Most loans require a down payment, which is a partial upfront payment for the home. The cost is anywhere from 3 to 20% of the total mortgage value. However, if you're a veteran or an active service member and eligible for a VA loan, you may not be required to make a down payment. If you increase the down payment, this decreases the amount that you need to borrow.
It's important to mention that, depending on the conditions of your loan and the size of your down payment, you might be required to purchase private mortgage insurance (PMI). This is a type of coverage that protects the lender in case you suddenly stop making payments. Many lenders will only require PMI if your down payment is less than 20%, so keep that in mind if you have enough reserved cash and want to reduce your monthly payments. This charge must be paid and processed before the closing date of your mortgage.
You'll pay closing fees
People often make the mistake of thinking down payments and closing fees are the same thing. However, closing costs are a completely separate charge. In addition to lender fees, they cover taxes and fees imposed by government entities, your local municipalities and any other administrative groups that are involved. If you don't have enough money saved to cover your down payment and closing fees, some lending companies will finance those charges into your loan, which will require you pay these as part of your monthly payments.
Your specific closing costs will depend on the type of loan that you're obtaining. But in most cases, borrowers pay the following fees:
You'll officially own the home
Once all the contracts are signed and the payments are made, ownership of the home will be transferred to you. The property will officially be registered in your name and the previous owner will provide you with the keys. Now, all you have to do is make monthly payments until the mortgage is completely paid off.
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