More Than Signing On The Line: How Does The Mortgage Closing Process Work?

When buying a home, you will quickly learn that patience is the name of the game. Not only do you have to find the right home, but you have to navigate the tricky process of making offers and counter offers before signing a contract. After that, there’s still more waiting during the mortgage closing process. Learn what exactly happens during a mortgage closing and how to stay on top of things each step of the way.

1. Complete Title Search and Insurance Underwriting

Mortgage lenders require borrowers to get a title search and title insurance to protect the lender’s financial interest in the home. If there are problems with the title, like a dispute over ownership or other liens placed on the home, those could prevent the lender from using the home as collateral on the mortgage. After the title search has been completed and any issues resolved, the title insurance underwriters will create an insurance policy that guarantees the lender coverage of financial loss if a title problem comes up later.

Typically, you do not need to do anything during the title search and title insurance underwriting process. However, if the title search uncovers a problem, you may need to renegotiate the terms of your real estate contract, or in the worst-case scenario, back out of the purchase. For example, the title search could find that a husband who jointly owned the house with his wife signed off on a sale without her, leaving her with a legal claim to the property. Or the title search could find a tax lien on the home that the seller would have to pay before completing the transaction.

2. Review the HUD-1 Settlement Statement

At least 24 hours prior to your closing appointment, the company handling the closing must provide you with a copy of the HUD-1, which is the final settlement statement. It lists all of the money changing hands at closing, along with what that money is for. Common items on the HUD-1 include:

• Purchase price
• Mortgage payoff
• Real estate agent fees
• Title fees
• Property taxes
• Government recording fees
• Escrow account deposit

Although the HUD-1 will be available at closing, it helps to go over it beforehand so you have time to check the details and request corrections for any information that is not accurate. In particular, compare the HUD-1 to your Good Faith Estimate and ask for clarification on any line items that do not match.

3. Perform a Final Walkthrough

The day before your closing or the morning of, if it is scheduled for the afternoon, your real estate agent should arrange for you to complete a final walkthrough of the home you are buying. This walkthrough is your chance to see the property in person and ensure that everything is in accordance with your purchase contract.

If you only take initiative on one of the closing process steps, make it this one. Bring the list of repairs the seller was required to complete, and check that each one was completed to your satisfaction. If it was not, you must either request a credit at closing or ask to delay the closing so the repairs can be finished. Confirm that all appliances listed in the purchase contract are present and in working condition. In addition, check that the property is in “broom clean” condition, meaning that all debris and personal effects have been removed.

4. Attend the Closing and Officially Purchase Your Home

The culmination of the mortgage closing process is the closing appointment itself. The buyers and sellers will both sign a seriesof papers to complete the legal transfer of ownership, either in separate rooms or at the same table. The company managing the closing will collect money from each party and distribute it as is laid out in the HUD-1 settlement statement.

Just prior to closing, confirm the amount of the cashier’s check you need to bring and stop by the bank for the check. You typically have the check made out to yourself and then sign it over to the closing company while you are there. At closing, make sure you understand the purpose of each document you are signing, and ask questions if anything is unclear. These are legally binding documents, and once you sign them, you can’t back out of the purchase.

For more information on the closing process, contact us below.