Few steps in the home-buying process are as stressful as the closing. While some jurisdictions refer to closing as “settlement” or “escrow,” it’s essentially the same wherever you go: that pivotal moment when all parties meet to transfer ownership of a home from seller to buyer, and all the money required to make that happen changes hands.
And if you got a mortgage, your lender will no doubt be involved, too.
So what can go wrong that could stall this process? A whole lot, if you aren’t prepared! In this final installment of our Stress-Free Guide to Getting a Mortgage, we lay out what steps you can take to avoid any last-minute snafus and cross the finish line into your new home.
Step No. 1: Be mindful of your credit score
Even though you were probably approved for a mortgage a month or more earlier, changes to your financial profile can negatively affect your credit score and, consequently, lead to complications at closing. Changing jobs, applying for a credit card, buying a car, falling behind in paying bills, or even getting sudden infusions of cash can red-flag your deal.
If your credit score drops, your lender could increase your interest rate or potentially even withdraw your loan offer. So, avoid making any sudden financial moves in the weeks leading up to closing. Got it?
Step No. 2: Review your closing disclosure form
At least three days before settlement, you’ll receive a closing disclosure, or CD, from your lender. This document outlines your exact mortgage payments, loan terms (e.g., the interest rate, length of the loan), and what you’ll pay in closing costs, which run anywhere from 2% to 7% of the home’s sales price.
When you receive the CD, compare the information on it to what’s on your loan estimate. (That’s the document you received when you got pre-approved by your lender.) Don’t hesitate to ask your loan officer to explain any discrepancies.
“The loan estimate is an estimate, meaning the numbers can change,” says Joe Parsons, a senior loan officer at PFS Funding in Dublin, CA. However, you’ll want to know why and make sure they were necessary and not just oversights.
Step No. 3: Get title insurance squared away
When you buy a home, you “take title” to the property—meaning you become the rightful owner. This ensures that no one else can claim full or partial ownership of the home in the future. This is important not only to you, but also to your lender—which is why it’ll require that a title company conduct a search of public records for any long-lost heirs insisting the property is theirs, liens (from contractors who worked on the home but were never paid), or other problems.
If all goes well, your title will be cleared and the lender will process the loan. But just in case it doesn’t, the lender will require that you buy title insurance, a policy that will pay for the expense of researching any claims and court costs that could crop up in the future.
Additionally, your title company will offer you owner’s title insurance, which isn’t typically required but often recommended, because lender’s insurance won’t protect you personally. To cut costs, look into whether you are eligible for a “reissue” rate on the policy currently in effect, which would offer a substantial discount.
Step No. 4: Bring the necessary documentation
When you go to closing, make sure you have the following items:
Step No. 5: Provide the rest of the down payment
You’ll already know from your disclosure form how much you need to cough up for the remainder of the down payment. (Note: Your earnest money deposit goes toward the funds.) Because you can’t use a personal check, you can either request that your bank wire the money or bring a cashier’s check to closing. (Ask the title company if it has a preference.) If you plan to wire the money, talk to your bank a couple of days before closing to confirm the transfer.
Get ready to sign a lot of paperwork
Be prepared for a hand cramp—you’ll be putting your John Hancock on a stack of legal documents, including forms for transfer of title, deed of trust, bill of sale, and transfer tax declarations. You should budget at least two hours for closing. Once you’re finished, you’ll receive copies of the paperwork and, in most states, the keys to your new home.
Determine your mortgage payment plan
Your closing costs typically include your first month’s mortgage payment, meaning you have a little time to plan how you’re going to make your future payments. You’ll receive a payment coupon book (either at closing or in the mail shortly after), which you can use to pay your mortgage premiums by snail mail if you so choose (retro, right?). Or, you can decide to pay your bill online. If you want peace of mind that you’re not going to miss a payment, you can set up automatic payments.
Tune in next week to learn about what your financing options are after becoming a homeowner.
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