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Loan Closing Process
Closing on a House
How the Home Loan Closing Process Works
Closing day is an exciting time because it’s the day you will finally see your dream of homeownership realized. It can also be a hectic time since there are a lot of details to manage. Here is a summary of how the home loan closing process works.
At PrimeLending, we will take the time to address your questions and guide you to a better understanding of how closing on your mortgage will work.
Total closing costs vary by lender. The home you buy, where it’s located and the type of loan you receive will determine what your costs are – which can range from 2% to 6% of the home’s purchase price. Most of these costs are fees charged by the lender and third parties for the services and work involved with processing and completing your loan. In most cases, closing costs are paid by the borrower.
Typical closing costs.
Because no two homes, or loans, are the same, it’s almost impossible to provide a complete and accurate list of what might be included in your closing costs. The most common costs for a buyer include:
- Home inspection
- Attorney fee (if required)
- Title search
- Recording the property deed
- Tax services
- Credit report
What are Discount Points?
Paying discount points is like pre-paying interest on your loan to get a lower interest rate. It’s a way to reduce how much interest you’ll pay with each monthly payment. One discount point typically costs 1% of the total loan amount, and lowers the rate from 1/8 to 1/4 percent
For example,* on a $200,000 loan, each point would cost $2,000. Assuming the interest rate on the mortgage is 5% and each point lowers the interest rate by 0.25%. Buying 2 points will cost $4,000 and will result in an interest rate of 4.50%.*
Paying for discount points is only a good idea if you plan to stay in your home well after you earn back the initial cost. A PrimeLending Home Loan Expert can help you decide if this makes sense in your case.
Who attends closing?
This depends on the laws in the state where your property is located, the type of home, property and more. In addition to yourself, people who attend the closing might include:
- Your attorney, if you have one.
- The seller’s attorney, if they have one.
- The buyer’s and seller’s real estate professionals.
- The builder’s representative, if a brand-new home is involved.
- The closing agent, who could be a title company representative or a real estate attorney.
- A notary public.
- The seller(s), but it’s not very common.
Steps in the Closing Process
The closing might be held at the title company’s office, your lender’s office, a real estate attorney’s office or other location depending on the situation.
Here’s what you can expect to happen:
- You’ll review and sign all of your loan documents. Take your time. Make sure each document is explained clearly, and you understand the terms you’re agreeing to. If something is different than what you expected or agreed to, don’t sign until the issue is resolved to your satisfaction.
- Your lender will distribute (wire) the funds covering your home loan amount to the closing agent.
- Depending on your loan terms, you may be required to set up a new escrow account with your lender that will be used to pay your property taxes and homeowners insurance as part of your monthly mortgage payment.
Be prepared for your writing hand to get a lot of exercise because you’ll be signing a lot of paperwork! Here are the three most important documents you’ll sign:
- Closing Disclosure: An itemized list of the final credits and charges for you and the seller based on the terms of the contract. You should receive a copy of the
- Closing Disclosure at least three days prior to the closing for your review.
- Deed of Trust or Mortgage: The documents in which you agree to a lien on your property as security for repayment of your home loan.
- The Promissory Note: The mortgage promissory note is a legal “IOU” that represents your promise to pay the lender according to the agreed terms, including the dates on which you must make your mortgage payments and where they must be sent.
What to Bring to Closing
Show up at closing prepared to provide a certified, or cashier’s, check made out to the title company to cover your down payment (if applicable), closing costs, prepaid interest, taxes and insurance or other costs. Your PrimeLending Home Loan Expert will make sure you know the exact amount to bring. You can also prearrange to have the money wired from your bank.
And don’t forget your ID! A government-issued identification card with photo will also be required.