What Paperwork is Needed for Closing?
Halloween is among us and there’s nothing scarier than the big pile of paperwork between you and your new home. But don’t fret, Expetitle is here to help you get familiar with the key documents you’ll be signing or reviewing at closing. You’ll feel a lot less stressed on closing day if you know what’s coming. You might even avoid a costly mistake.
Closing Process Overview
The closing process begins right after the seller accepts your purchase offer. That’s typically 30 to 60 days before your actual closing date– assuming a loan underwriting snag, low appraisal, or major defect discovered during a routine home inspection doesn’t delay the deal. During this period, the sale of your home is said to be “pending.” If it’s customary in your market to make a substantial deposit (up to 10% of the agreed purchase price, in some cases) into an escrow account once your offer is accepted, you may also refer to the closing process as the escrow period– as in, “the home we’re buying is in escrow until our closing day.”
No matter what you call it, a lot needs to happen between the day the seller accepts your purchase offer and the day you sit down to make the transaction official. Here’s a look at the general sequence of events that occur during the residential real estate closing process and the documents and disclosures you need to understand and sign to make your real estate transaction official.
At the appointed closing time, you sit down and sign numerous documents with your title or escrow agent, real estate agent, and possibly attorney. Sellers bring their counterparts as well, though sellers don’t have quite as much paperwork to sign and therefore often don’t show up until you’re well into your signing odyssey.
Given the gravity of the transaction, and the amount of money involved, take as much time as you need to read and understand everything you’re signing. Some closing documents are written in dense legalese, so ask your attorney or real estate agent if you’re not clear on anything. Don’t let the title or escrow agent rush you – they’ve done hundreds of closings in the past, and are likely more concerned about making their next appointment or getting out of the office on time than ensuring that you’re 100% on the up and up.
What follows are the most important documents to read and sign during closing:
- Promissory Note. This represents your binding commitment to repay your mortgage loan. It includes the total amount you owe on your loan, your loan’s interest rate, your monthly payment dates, the duration (term) of your loan, and acceptable payment methods (with a physical address to send personal checks). If you have an ARM or variable-rate mortgage, your promissory note will also have a detailed explanation of how, when, and by how much your rate and payments can change.
- Mortgage/Deed of Trust. The mortgage (or deed of trust) is a contract that gives your lender the right to seize your property through foreclosure if you fail to pay your mortgage as agreed. The mortgage reiterates the information contained in the promissory note, but also goes into greater depth about your rights and responsibilities as a homeowner and borrower – for instance, describing how you are to occupy the property (as a primary residence, rental property, and so forth) and outlining how and when your lender can declare you in default.
- Initial Escrow Disclosure. This describes how your lender plans to distribute the money in your escrow account. It includes a breakout of your principal-plus-interest and escrow payments, plus 12 months of expected monthly escrow balances. The escrow disclosure also shows when and how much each escrow item (property taxes, insurance, and possibly PMI and HOA dues) is to be paid.
Additional Closing Documents to Read and Sign
The closing process involves reading and signing a slew of additional documents as well. Again, take as much time as you need to read through and understand each item, asking questions if necessary. After all, one thing the closing process doesn’t include is the chance for a do-over.
These documents are commonplace at closing, but your transaction may involve a somewhat different mix based on the rules in your area and the type of home you’re buying.
- Signature/Name Affidavit. This is basically the signature proof that the lender, loan servicer, government entities, and any other relevant parties use to determine the legitimacy of your signature on all other closing documents. It’s particularly useful during mortgage fraud investigations.
- Certificate of Occupancy/Occupancy Statement. If you’re buying a new construction home, you need to sign a certificate of occupancy indicating that the home is ready and safe for occupants. Technically, a missing certificate of occupancy can delay the closing process. If you’re buying an existing home, you need to sign an occupancy statement outlining the home’s purpose, how soon you’re required to move in, and what can happen if you use the home in a manner inconsistent with the stated purpose (for instance, foreclosure).
- First Payment Notification. This restates the amount (with an escrow, principal, and interest breakdown) and the date of your first mortgage payment. It also includes information about how to make your payment, including the servicer’s physical and web address.
- Seller/Lender Concessions. This document outlines which closing costs, if any, the seller and lender pay.
- Servicing Disclosure. This identifies your loan’s servicer – either the originating lender or a company that subsequently purchases the mortgage – and confirms your understanding that the loan can be transferred in the future.
- Private Mortgage Insurance Disclosure. If your loan-to-value ratio (LTV) is greater than 80%, your lender likely requires private mortgage insurance (PMI). This disclosure defines PMI and describes your relevant rights and responsibilities, how and when it’s paid (typically monthly, into escrow), and when you can request that it be dropped (typically after passing the 80% LTV threshold).
- Flood Hazard Statement. This confirms that your home is or isn’t in a special flood hazard zone. If your home is in a flood zone, it likely requires flood insurance.
- Appraisal Acknowledgement. This confirms that you have a right to receive a copy of your home’s appraisal. It’s often included in the mortgage application as well.
- Equal Credit Opportunity Act Disclosure. This federally mandated form reiterates that your loan can’t be denied based on any protected status, such as race or creed. It’s often included in the mortgage application.
- Truth-in-Lending Disclosure. This is another federally mandated document that spells out the characteristics of your mortgage loan, your monthly payments, and the total amount (including principal and interest) you can expect to pay over the life of your loan.
- Mortgage Fraud Statements. This document defines the various forms of mortgage fraud, lists potential penalties for those found guilty of mortgage fraud, and outlines the steps taken by the U.S. government to investigate and prosecute people suspected of fraud.
- Homeowners Association Covenants and Agreements. Contracts applying to your membership in a homeowners association sometimes appear at closing, though they’re often dealt with prior to closing day too.
- Hazard Disclosures. Although the purchase agreement typically includes all necessary hazard disclosures for your home, don’t be surprised to see the same, or additional, ones in your closing packet.
Given the amount of paperwork, it’s no surprise that errors are one of the more common problems at closing. Sometimes you can get copies of certain documents in advance, and even sign them electronically, which makes it easier to review them thoroughly. Ask your lender or closing agent.
Just take your time, both before and during your closing. The number-one mistake might be to let anyone rush you. But most importantly, enjoy the process, you’re about to be a homeowner! 🥳