Buying a home is a process, and the reward is finalized by closing on a house. Better yet, buyers want to get the keys to their new home, but many do not know what to expect or do on the closing day. The purchase closing process includes the closing disclosure, signing closing papers, funding, and recording. To have a successful and lower stress purchase, it helps to understand the end before you begin. So, let’s discuss what it takes to have a successful real estate closing.
Closing Disclosure 3 Days Before Closing Day
In 2015, a new mortgage disclosure process called TRID became the requirement for most closings. TRID stands for TILA-RESPA Integrated Disclosure. Okay, most will never remember that, so the easier name is “Know Before You Owe Rule.” That means lenders must provide an initial closing disclosure to all borrowers at least three business days before consummation. Business days are all days other than Sundays and federal holidays. Most real estate transactions require the closing disclosure (CD), although there are some exclusions from the rule.
Closing Disclosure Exclusions
- Cash sale
- Land only sale
- Reverse mortgages
- A home equity line of credit
- Mortgages on manufactured homes & others not attached to real property
What is a Closing Disclosure?
The CD is the final document which provides a specific summary of a borrower’s loan and is 5 or more pages long. The initial closing disclosure provided three or more days before the closing day is typically not the final numbers. Meaning all of the final costs may not be available yet, but since a borrower cannot close without a lender meeting this three-day requirement, sending it to the borrowers without final figures is common.
Meanwhile, the lender and closing attorney or settlement company work to complete a final, accurate closing disclosure. This is the one used on the closing day. Every lender’s CD looks the same other than the specific transaction’s information.
What’s Included in a Closing Disclosure?
Every CD includes the following details:
- Loan terms
- Projected loan payments
- Cash to close
- Closing cost breakdown & total
- Comparison of initial Loan Estimate quote versus Closing Disclosure
- Summary of purchase and loan details
- Additional details such as assumption, prepayment options, escrow explanations, and more
Now, the borrower(s) have the details for closing from their lender.
How to Prepare for Closing Day
The big day is coming. The nerves and excitement have probably taken over. Closing is not something people do every day unless the person is in the real estate business. First time home buyers need to know what to do. Although, even repeat buyers need a refresher of what to do. The biggest thing to remember is lean heavily on your expert loan officer and real estate agent.
Closing Day Preparation Steps
- Acknowledge CD at least three days before closing
- Bring your identification (some lenders & settlement companies require two forms of ID)
- Certified funds for closing (ask for the final amount & form it needs to be)
- Verify who needs to attend
- Discuss the final terms in detail with your loan officer
Of course, there are other purchase related items like confirming movers, verifying utilities, and more.
Signing Closing Papers
The final day is here, and it is time to make the mortgage official. Signing the paperwork. Closing may take place in many ways:
- Real Estate Closing Attorney
- Title Company
- Settlement Company
- Notary Closing
- Electronic Closing
Closing Document Signing Options Explained
Lenders, Realtors, and even buyers have their preferences for who closes the purchase and loan. There are advantages and sometimes disadvantages to each before or on closing day. Typically, the closing attorney is going to provide the most answers to legal and documentation questions. Title & settlement companies have an attorney on staff but may not handle the actual closing. Notary closings offer only a person to witness signatures as a notary may not explain the documents. So, it is key to have access to someone to answer questions if it is a notary closing. Electronic closings offer e-signatures. Signing a screen instead of using actual pen and paper. The level of assistance depends on who attends or is available. It is highly advised not just to receive a closing package, e-sign it, and send it back without anyone explaining the documents.
Remember, just because a buyer has signed the closing documents, the home does not belong to the buyer yet. There are additional steps involved. First is the seller must also sign their documents. There’s more needed to finalize the transaction and make it official.
Purchase Funding and Recording Explained
Now, everyone has signed the paperwork. The buyer has provided their cash to close. Another step includes the mortgage lender providing the funds for the loan. Simply put, the lender wires these funds to the entity handling the closing. Lender funds, buyer’s cash to close, and any earnest money deposit are combined in a trust account. Once the company managing the closing and recording has access to all funds, recording may happen.
The recording is the final step, and it usually takes place on the closing day. Occasionally late in the day closings or ones that have delays, may record the following day. It is the process of updating the title search to verify nothing has changed since the prior search, recording the deed into the buyer’s name, and recording the mortgage(s). In addition to these requirements, there could be other items to record such as a power of attorney. Once the deed and mortgage are both recorded in the county’s register of deeds where the home is located, the house officially belongs to the buyer.
Now the buyer can get the keys and move into their new home!! Woo Hoo!!
Want to learn more about how, to begin with, the end in mind and have a smooth closing? Contact an OVM Financial loan officer now.