Securing a Mortgage: Getting to Closing Day
Closing can be an exciting and nerve-racking time during the lending process. You are one step away from finally being able to claim a new home as yours, but you’re not quite there yet and the deal could still fall through. As such, it’s essential to know what to expect during closing, as well as the associated closing costs, so you can ensure that the deal doesn’t fall through during the closing process. Knowing what to expect means you can have money set aside for closing costs and you are less likely to run into problems during closing.
If you would like more information about the closing process or you’d like to know how much you need to budget for closing costs in your specific situation, we can help. Contact us today at to speak with a HUD-approved housing counselor to learn what you need to know and what you should expect before you can finally call a new home yours.
What to Expect Once You Apply for a Loan
It usually takes a lender 1-6 weeks to complete the evaluation of your mortgage loan application. It is not unusual for the lender to ask for more information once your application has been submitted. The sooner you can provide the information they require, the faster your application will be processed. Once all the information has been verified, the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing with you. After closing, you’ll be able to move into your new home!
What You Need to Know about Homeowner’s Insurance
A paid homeowner’s insurance policy (or a paid receipt for one) is required at closing, so arrangements for homeowner’s insurance will have to be made prior to your closing day. It’s important to note that the earlier you involve your insurance agent in the process, the more money you may be able to save. Insurance agents are a great resource for information on home safety and they can give tips on how to keep your insurance premiums low on your new home.
You can get started securing homeowner’s insurance once you make an offer on a property. Be sure to shop around among several insurance companies. Also, consider the cost of insurance when you look at homes to minimize insurance costs as much as possible. Newer homes and homes constructed with materials like brick tend to have lower premiums. Choose a home with a fire hydrant or a fire department nearby.
If you choose a home in a flood plain, you will have additional costs for flood insurance as well. Depending on how likely an area is to flood, flood insurance may actually cost just as much money, if not more, than your standard homeowner’s insurance. Your real estate agent, lender or insurance agent can help you determine flood insurance costs for a given area. It’s important to note if you live NEAR a flood plain, you may choose whether or not to get flood insurance coverage for your home. Work with an insurance agent to construct a policy that fits your needs.
What are Home Warranties?
Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by your homeowner’s insurance policy. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home – a time when many people find themselves strapped for cash and unable to afford costly repairs. Home warranties are optional, but you must decide to take out this kind of warranty before you close on the property.
The Final Walkthrough
During closing, you will do a final walkthrough of the home. If you’re purchasing a home that was occupied, this is likely to be the first opportunity you have to examine the house without furniture, so you can have a clear view of everything to make sure there aren’t any damages or defects that were hidden by furniture.
Make sure to check the walls and ceilings carefully, as well as any work the seller agreed to have completed in response to the formal inspection. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller’s responsibility to fix these issues and they should assume the cost. If you don’t bring it up at this point during the closing process, you will be footing the bill for those repairs yourself.
Understanding Closing Costs
Closing costs can vary by location. In some cases, you may have a closing cost that is customary or unique to a certain locality. However, in general, closing costs are typically made up of the following:
- Attorney’s or escrow fees (yours and your lender’s, if applicable)
- Property taxes (to cover tax period to date)
- Interest (paid from the date of closing to 30 days before the first monthly payment)
- Loan origination fee (covers the lender’s administrative costs)
- Recording fees
- Survey fee
- For premium of mortgage insurance (if applicable)
- Title insurance (yours and the lender’s)
- Loan discount points
- First payment to escrow account for future real estate taxes and insurance
- Paid receipt for homeowner’s insurance policy, as well as flood or fire insurance, when applicable
- Any documentation preparation fees
What to Expect on Closing Day
You will present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will also provide proofs of any inspection, warranties, etc.
Once you’re sure you understand all of the documentation, you’ll sign the mortgage, agreeing that if you don’t make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You’ll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
You’ll pay the lender’s agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items paid. The deed and mortgage will then be recorded in the state Registry of Deeds and you will be the homeowner.
You will receive the following on closing day:
- Settlement Statement, HUD-1 Form (itemizes services provided and fees charged; it is filled out by the closing agent and must be given to you at or before closing)
- Truth-in-Lending Statement
- Mortgage Note
- Mortgage or Deed of Trust
- Binding Sales Contract (prepared by the seller; your lawyer should review it)
- Keys to your new home