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Closing or settlement occurs when the purchase price of the home is paid to the seller and ownership of the property changes hands. Settlement practices may vary widely, depending upon state law and local custom. Settlement may take place at the office of an attorney, title insurance company, title agent, escrow company, or real estate broker. Sometimes, the settlement might even take place at the office of the lender. What exactly should you expect at closing? The information below should help to answer some of your questions.
What to Bring to Closing
Lenders normally loan only a portion of the home's purchase price to the buyer, such as 80 percent. This means that you will need to bring additional funds to closing to pay the rest of the purchase price, plus your portion of the closing costs and the lender's fees and charges. Find out from the settlement agent, or from your real estate broker or attorney if you have one working with you, how much money you need to bring. Also, ask if you must bring it as a certified check, or whether a personal check will suffice.
You will likely need to bring proof of casualty insurance on your new house in the form of a "declarations page" or "binder," along with evidence that you have paid the initial premium. Your insurance agent should be familiar with what lenders require and will need to list the lender as an "additional insured" on the insurance policy.
You also may need to bring a pest inspection report to confirm that the property is free of any pest infestation. If there are other items you need to bring, the settlement agent, attorney, real estate broker, and/or lender should let you know what they are.
Signing Multiple Documents
Parties to sale of a home, especially buyers, typically have to sign many documents at closing. Some of these documents are in the nature of disclosures, such as the disclosure of the Annual Percentage Rate (APR) of the loan (see "Applying for a Residential Mortgage Loan"). Many of these disclosures may be required by federal or state law or regulation.
Two important documents you will be required to sign are the Note and the Mortgage. The Note is your promise to pay back the loan. You should read it to make sure the interest rate and other terms are what were agreed. The Mortgage is the pledge of the home as security for the loan and, following closing, it is filed in the public land records of the county in which the property is located.
The Settlement Statement
The Settlement Statement shows how the loan proceeds, together with the money you bring to closing, are disbursed. The following is information on some items on the settlement sheet that can sometimes be confusing:
Settlement statements can be mystifying unless you deal with them on a daily basis, so ask the lender or settlement agent to explain anything you don't understand. Closing on the purchase of a home can be a trying experience, but a good lender can help you understand the process.
Updated: January 1, 2013
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
© 2013 Wilmington Trust Corporation.