Details matter, especially when it comes to the all-important Loan Estimate and Closing Disclosure.
Image: Creative Market
This article was contributed by financial expert and blogger Lauren Bowling, a recognized thought leader in the millennial finance space. A full-time online business owner, Bowling teaches others how to master their finances and create their own economy via her body of digital products, free online courses, and weekly blog content.
After all of the components of the home buying process —: negotiations, appraisals, inspections, and insurance — it’s very exciting to (finally) get to closing. But do you know what really happens during this final appointment? Closing on a home can be nerve-racking simply because many first-time buyers don’t know what to expect or what to bring along.
Here, we’ll walk through all the details of what to expect at closing.
Scheduling & Closing Attorney Selection
The date of closing is typically set in the offer letter as most sellers will want to know when they can expect the closed sale once the home is under contract. Typically, closing is set 30 to 60 days from when offer is accepted, although this can change depending upon a variety of factors, including inspections and paperwork processing with the lender.
Depending on the state you live in, closing may take place at the closing attorney’s office or the title company. It’s the buyer’s right to choose the closing attorney. This person acts in the interest of the buyer and takes care of the “housekeeping” items of the closing, such as preparing paperwork, making sure all paperwork is properly signed, conducting a title check on the property, and receipt and distribution of money, among other things. The fee for the closing attorney is often included in the closing costs.
If you’re buying a home with an FHA loan, a mortgage loan option backed by the Federal Housing Administration that allows home buyers to put as little as 3.5% down, many lenders may recommend one of their pre-approved attorneys. If you (as the buyer) don’t have an attorney, the lender can also choose one for you, but you’re not required to use that recommendation.
Paperwork You’ll Receive
There are two pieces of paperwork home buying consumers should familiarize themselves with: the Loan Estimate and the Closing Disclosure. Both of these tools explain the loan terms, like interest rate and other costs associated with the loan (taxes, recording fees, etc.). The Loan Estimate should be provided to you no more than three days after your loan application. Keep the estimate in a safe place to compare with your Closing Disclosure and check for any discrepancies.
No later than three days before closing, your lender must provide you with a Closing Disclosure, which will look very similar to your Loan Estimate. Double check the interest rate information, address, and all other relevant information for accuracy. If something appears different than what you thought, reach out to your mortgage broker or lender for clarification.
The Closing Disclosure will detail information about your mortgage loan and the exact amount you’ll need to bring to closing to cover closing costs.
On the day of closing, you’ll receive the following paperwork:
- Mortgage note stating you agree to repay the loan
- Deed of trust to secure mortgage note
What to Bring
- Cashier’s check for closing costs (or paperwork confirming Don’t Get ScammedIf you’re wiring your down payment, discuss the wiring process with your agent early on to avoid an email scam where hackers pose as your agent. wire transfer of funds from your bank)
- Proof of homeowners insurance (likely already verified, but bring a copy to closing just in case)
- Copies of any paperwork you’ve received from contract to close (again, just in case, for your reference)
Common Mistakes to Avoid
Given the length of time between contract and closing, most closings should be fairly routine and go smoothly because all of the legwork has been done prior to this date (such as checking the title, inspecting the home, loan underwriting with the lender, etc.) Unfortunately, hiccups can happen, which is why it’s best to avoid the common mistakes below:
- Try to avoid closing on the last day of the month. In the event something goes wrong, you’ll want time to correct. This is because pre-paid interest on the loan accrues and is due at closing, and if pushed to a new month, the interest will continue to build.
- Don’t skip the final walk-thru. Buyers should do this to ensure no new damage has been made to the home shortly before closing. If buyers opt not to do this, they cannot hold seller responsible for damages after transfer of property at closing.
- Don’t make any big financial purchases in between contract and closing. The bank loaning the money for the mortgage has financed the home based on the most current financial information available. If you finance a car, an appliance, or any other big purchase, this affects your financial information and can delay closing on the home significantly. Unless it is the most dire of circumstances, hold off on big purchases to get into your first home as quickly as possible.
- Don’t skim the closing documents. You want to check for typos on names and addresses.
Armed with the information above, first-time buyers should feel comfortable going into their first closing. Once the closing is over, you should receive keys (unless otherwise negotiated with the seller) and you’re officially the owner of your new home!