In school, it’s graduation. In romance, it’s the wedding. And in real estate, the magic day is closing. Unlike those other big life-changing moments, closing day (or settlement day) is short on ceremony and long on signing. Closing day can also seem mysterious and confusing, so here’s a rundown of what you should expect.
Your big day
Plan on spending at least two hours at the closing agent’s office. You might get out in one, but don’t bank on it. Have a snack first and don’t be shy if they offer you water or coffee. You’ll need to keep your mind alert because every one of those forms is actually kind of important. This may seem easy because you come into the room a little jazzed and nervous. But the process will wear you down and you’ll be tempted to just blindly sign every piece of paper they put in front of you. Don’t.
You may be wondering why you need to go in and sign in person at all. After all, we’re getting used to handling pretty much everything online. It’s allowed now by the federal government and someday it may become the norm. But for now, physical signatures are still preferred to ensure that everyone has been able to read and verify the documents.
Who’s going to be there?
In some parts of the country, the buyer and seller sit down together at closing. In other areas, you’ll never set eyes on your seller as you each have a separate appointment. The closing agent is usually a title officer, an escrow company officer or an attorney. The important thing is that the closing agent is a neutral third-party who as the knowledge and training to get everything completed correctly. You and the seller agree on the closing officer as part of the original offer on the home. In addition to the closing agent, you may also have your real estate agent or an attorney present, especially if it’s your first home. In a few states, an attorney must be present at closing.
What should you bring?
In addition to patience, you absolutely must have the following:
Photo ID: The closing agent has to verify that you are who you say you are. A driver’s license or current passport will do. A Costco membership card, not so much.
Cashier’s or certified check: This is to cover any down payment and closing costs you owe. Do not bring personal check or cash. You’ll know exactly how much to get the check made out for because federal law requires that you be told the amount you need to bring to closing at least one day before settlement. The closing agent will tell you whether you need one check or two and to whom they should be payable. If you want to wire the funds instead of getting a certified check, make sure you do it a couple of days in advance, to protect against any glitches at the bank that could delay your closing.
Proof of insurance: The closing agent needs to see proof that you have the insurance in effect on closing day and a receipt showing you’ve paid the policy for a year. They may have already collected that but it doesn’t hurt to bring your own copy just to ensure things go smoothly.
Final purchase and sales contract: Just in case you need to double-check a detail against closing costs.
What will you be asked?
If you haven’t already established this, you’ll need to tell the closing agent how you wish to take title of the home. You will likely decide between these three common selections:
Sole owner: An unmarried person buying a house alone has the easiest task. Title is taken as a sole owner in the individual’s name.
Joint tenancy: When a married or unmarried couple buy a house together, things get more complicated. If they choose to take title with joint tenancy, each has the right of survivorship. If the spouse or partner dies, full ownership goes to the survivor. There are tax advantages for the survivor as well, regardless of marital status.
Tenants-in-common: When two or more individuals buy a home together as tenants-in-common, they are partners who may own unequal shares and who can sell their shares of ownership independently.
Decide before you attend the closing how you wish to take title to the property. If you aren’t certain, consult an accountant, real estate attorney or estate planner to learn the advantages and disadvantages of each type of ownership.
How many papers will you sign?
More than you could ever have imagined. You’ll actually have two closings, one on your loan and one on the purchase of your house. The documents will vary based on where you live and the specifics of your home, but it could be up to 24 just for the loan and another dozen or so for the real estate transaction. Here are some documents you’ll likely encounter:
Documents related to closing your mortgage
Promissory note: Just as it sounds, when you sign this, you are promising to pay back the sum you’re borrowing. It also outlines the terms of the loan, including any prepayment penalties and interest rates. This may not be as sexy as saying “I do,” but it’s important. Check it over carefully before putting pen to paper.
Truth in lending statement: Prior to signing your mortgage contract, you will be given a federal “truth in lending” statement, also known as Regulation Z. This sheet of paper shows your interest rate, annual percentage rate, the amount being financed and the total cost of the loan over its life. You definitely should give this document a close look to make sure there are no surprises.
Mortgage or deed of trust: This is another big step. When you sign this document, you are putting your new home up as security for the debt you now owe. Technically, the lender puts a lien on the property.
Monthly payment letter: This paperwork breaks down your monthly mortgage payment showing how much goes to principal, interest, taxes, insurance and anything else you are paying as part of the payment.
Documents related to your closing
Closing disclosure: This multi-page behemoth replaces the old HUD-1 form. It itemizes the buyer’s and seller’s closing costs separately. By law, you are entitled to get this form three days before your closing meeting and should be in the same format as the Loan Estimate you got after applying for your mortgage. You should have had time to look this over before your meeting, but to err is human. Look it over carefully again. If you are closing electronically on a house in another part of the country, there is a chance you won’t see the settlement statement in advance. Review everything carefully before signing.
Warranty deed or title: This piece of paper transfers the title from the seller to the buyer. It also contains the legal description of the property.
Proration papers: These agreements explain how the buyer and seller are dividing up the property taxes, interest and perhaps homeowner association dues for the month in which the transaction is taking place. Buyer and seller might also sign an agreement stating how current utility bills are being split.
Statement of Information: This document may be called a statement of identity. The title company uses this personal information to eliminate any confusion between you and anyone with a similar name.
Declaration of Reports: An acknowledgment that the buyer has seen and signed off on all the inspection and survey reports done on the property.
Abstract of Title: The abstract lists all recorded documents affecting title to the property.
When does the fun begin?
You’ve signed the papers, paid the lender and read the contracts until your eyes turned blurry. It may not be as much fun as a graduation or a wedding, but you deserve to celebrate.