What is mortgage closing?

What happens at the closing?


Answer: The “closing” is the last step in buying and financing a home. The "closing,” also called “settlement,” is when you and all the other parties in a mortgage loan transaction sign the necessary documents.

After signing these documents, you become responsible for the mortgage loan. Familiarize yourself with some key documents you will be signing so that you know what to look for when you receive them.

If you are purchasing a home with a loan, the closing of your loan (the time when your loan becomes final and the funds are distributed) and the closing of your home purchase (when you become owner of your new home) typically happen at the same time. Once the closing is complete, you are legally required to repay the mortgage.

Your closing may include some of these entities:

  • Your real estate agent or realtor
  • Your title insurance company
  • An escrow company
  • Your attorney (if you come from a state where attorneys conduct closings, or if you hire legal representation for your closing)
  • The seller’s attorney
  • Your lender may or may not attend

Depending on what state you live in, all the parties may sit around a table and sign all the documents at once. Or the closing could take several weeks as the signatures of each party are collected separately. Some companies allow you to electronically sign documents, either in advance of closing or at the closing table. A closing may even be conducted by mail or even on the internet.

Regardless of who performs the closing or where it occurs, there will be many important documents that you’ll need to sign that will have lasting financial implications on your life.

TIP: Before you sign, make sure you carefully read and understand all the loan documents. Don’t sign the loan documents if the loan is different from what you expected. Don’t sign the documents if you can’t make the payments, if you find any errors, or if you do not understand the loan terms.

Be sure to understand how your payments may change over time. With an adjustable-rate mortgage, your payments may increase over time, and it is important to understand when the payment can change and by how much. Even with a fixed-rate mortgage, your total monthly payment may change due to changes in your taxes or insurance. 

 

I’m about to close on a mortgage. What are the key steps I can expect in the mortgage closing process?

 

The closing is a key final step in the purchasing and financing of a home. During this time, you sign legally binding documents in which you agree to pay back a loan and grant the lender the right to take back the house if you do not make the payments you agreed to.

 

Your lender transfers money that you are borrowing to the seller on your behalf, and the seller signs a document called a "deed," which is the legal document making you the owner of the home. The title company – or escrow company (in most western states) or closing attorney (in some eastern states) – prepares additional documents that support the transfer of the home to you and then records these documents with the county registrar’s office or county register of deeds. You may also have to sign additional documents that identify your rights and obligations as the home loan borrower.

TIP: At least three business days before closing, you receive your “Closing Disclosure”, which lays out the terms of the loan including an itemized list of fees associated with the closing. Take this time to review the “Closing Disclosure”, compare it to your “Loan Estimate” and make sure the loan terms are what you agreed to. Let your lender know if you believe there are mistakes and ask about anything you don’t understand.

Here is what you can expect

  • 1. You will receive a lot of documents

    1. You will receive a lot of documents


    Expect to receive and/or sign many documents. These documents will include:


    • Your Closing Disclosure
    • Your promissory note, which is your promise to repay the mortgage loan to your lender
    • The mortgage, also known as the security instrument or deed of trust. By signing this document, you agree that the lender may foreclose on your home if you fail to repay your mortgage
    • The deed, which transfers legal ownership of the property to you

     

    Note: For some of the documents you sign, your signature needs to be notarized (for example, on the deed of trust).

  • 2. Transfer of funds

    2. Transfer of funds 


    Money may also change hands. The closing or settlement agent (known as the escrow agent in western states) is responsible for collecting the money from the parties and paying it back out again according to the terms of the sale and loan. You’ll need to pay for your down payment (less any deposit you’ve already made) as well as costs associated with the closing. Sometimes the seller may pay costs related to closing to the lender. This is determined by the terms of your purchase contract. The lender provides the funds from the mortgage loan. The closing agent then pays out the price of the home to the seller and distributes the closing costs to the various closing service providers.

  • 3. Taxes and insurance

    3. Taxes and insurance 


    You will need to show proof of Homeowner’s Insurance so that the lender will fund the mortgage loan. If your loan includes an escrow account, the account is set up and you make an initial deposit.

  • 4. Transfer of Ownership

    4. Transfer of Ownership


    Once all the documents have been signed, funds have been disbursed and the closing has been finalized, the transfer of ownership occurs. The seller, or a representative of the seller, gives you the keys to the new home, and the closing company, title company, escrow company, or attorney submits the mortgage and transfer of ownership documents to the county registrar’s office to be officially recorded.

Below you can download the CFPB Closing Checklist to make sure you are prepared for your closing.

TIP: If you have a problem with your mortgage closing process, you should discuss the problem with your lender. You can also submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372) and they will forward your complaint to the lender and work to get you a response, generally in 15 days.

  • What can go wrong?

    The following are some examples of what can go wrong with a closing:


    • The lender decides not to finance the property at the last minute
    • The buyer is short on funds required to close the transaction
    • The seller did not clear up property liens

    Some other actions which can cause issues at closing are when the buyer’s financial circumstances change towards the end of the closing, such as:


    • Opening a new credit account
    • Obtaining a new auto loan
    • Charging up an existing credit card can delay or even cancel your mortgage closing

     

    To lessen the chances of issues arising at closing, it is advisable for potential homebuyers to research the entire homebuying process with an attorney, mortgage lender or mortgage broker.

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