This is the final chapter in a 5 part series for home buyers. If you would like to start at the beginning, click here. We left off on what to expect during the inspection period while you’re under contract. There was a lot to be done during this short period of time, and unfortunately, the work isn’t over yet.
Here are some things you will want to be aware when you’re at the closing table and after you move in.
The Loan Estimate
The Loan Estimate is the document with an itemized breakdown of your loan terms. You will receive the estimate from your lender after you have been pre-approved and received the pre-approval letter. After making an offer and submitting an official application to the lender who pre-approved you, you should receive the Loan Estimate within 3 business days.
Your Loan Estimate is not the same as the Closing Disclosure. Be sure to examine both documents carefully. There are a myriad of reasons why certain terms of your loan may change between when you received the initial estimate from your lender and the closing disclosure. This could be because the information regarding your assets or income were reported inaccurately on your application or the appraisal was for less than the sale price. Some lenders may lock in your interest rate as a part of the loan estimate while others may not. Check the top of your loan estimate to see if this applies to you and for what period of time.
It’s not uncommon for some closing costs to change, so be sure to ask your lender questions if something has changed and you don’t understand why. If you’re not satisfied with the explanation, you can choose to work with another lender. Nearly half of home buyers don’t shop around for a mortgage, which means you could be losing out on major savings for the lifetime of the loan.
Unfortunately, at this stage, you may have to negotiate with the seller to delay the closing until you can arrange for a new loan with a different lender. In a tight seller’s market, this could mean your deal falls through, so you may have to decide what matters more to you: getting the house or getting a better deal.
Compare these details of your Closing Disclosure with your most recent Loan Estimate from your lender before signing:
- The spelling of your name
- Loan Information: the loan term (usually 15 or 30 years), product (type of rate), loan type (FHA, conventional, VA or other), and purpose (refinance or purchase)
- The loan amount should match your most recent loan estimate
- Your interest rates
- Prepayment penalty
- Balloon payment
- Estimated total monthly payment should reflect the most recent loan estimate
- Any items in Estimated Taxes, Insurance & Assessments that aren’t in escrow
- Closing costs should match your most recent loan estimate
- Cash to close should match your most recent loan estimate
- The “Services Borrower did not shop for” are similar to what is on your loan estimate
- The “Services Borrower Did Shop for” and “Other Costs” are familiar to you. If you don’t recognize the companies or charges, ask your lender to explain what these charges are.
- Seller Credit should match the amount of closing costs the seller has agreed to pay
- Penalty fees for late payment
- Acceptance of Partial Payments
- Escrow Account Details
- Contract details section instructs that you read your note and security instruments
“Services Borrower Did Shop For” and “Other Costs”
These are the types of services that third-party providers like PropLogix will sometimes perform on behalf of the title agent or real estate lawyer to satisfy items listed in the negotiated closing costs between you and the seller and the schedule B-1 of the title commitment, which is a checklist of items needed to issue a home owner’s title insurance policy. These may include things like land surveys, HOA letters, tax certificates, and municipal lien searches.
The Note and Security Instrument
The Note, also called the promissory note, is the legal document you sign agreeing to repay your mortgage. The details covered in the note include the total amount of your loan, the interest rate (if it's an adjustable rate, this document will reflect your initial rate), the dates of payment, repayment period, what happens if you are late on your payments, and explanation of how your interest rate may change and any caps if you choose an Adjustable Rate Mortgage.
The Security Instrument, also known as the Mortgage or Deed of Trust, is the document you sign giving the lender the right to foreclose on your property if you fail to pay your mortgage according to the agreed upon terms. It explains your rights and responsibilities as a borrower, or “recipient of mortgage.”
Some rights and responsibilities to be aware of may include Occupancy, Hazardous Substances, and Acceleration. The Occupancy clause requires a buyer to “occupy, establish, and use the Property as Borrower’s principal residence” within a given time frame. If you agree to use the premises as your main place of residency but end up renting it, you could risk foreclosure. Storing hazardous materials at your home may also violate the terms of your loan and lead to foreclosure.
Acceleration is a particularly scary clause. If you don’t make your monthly mortgage payments on time or abide by other conditions of the loan like having current homeowner’s insurance, your lender has the right to declare you in default of your loan and demand you pay off the ENTIRE loan immediately. If you are unable to pay, foreclosure proceedings will start.
Escrow Accounts Details
You will also find an Initial Escrow Disclosure Statement among the documents at closing. This will include your current monthly payment for principal and interest on your loan in addition to other money added to the account to pay for taxes and insurance bills.
Lenders will often require borrowers to bundle their homeowner’s insurance fees and property taxes in order to avoid competing with other governing jurisdictions with superpriority in liening your property. For instance, if you stopped paying your property taxes, the county will have the right to foreclosure on your property to recoup their losses before your lender.
Other Closing Table Considerations
According to the CFPB, buyers are to receive their closing disclosure three business days before closing; however, unpredictable administrative slowdowns and competition between lenders mean promises for quicker loan approval periods and potential for cutting it close. In some cases, these documents may be delivered the day of closing.
Be proactive in following up with your lender to ensure you receive these documents with plenty of time to review. Be polite but tenacious about this and let the loan officer know that you will refuse to close if you don’t have all the final documents at least 24 hours prior to closing.
Because many lenders don’t provide Closing Disclosures with ample time for review, it may be difficult to figure out how much in certified funds to bring on your own. You can’t write a personal check to the closing attorney, so having an experienced real estate agent or attorney to calculate this amount is extremely helpful.
Finally, remember that the closing attorney represents the lender, not you. Hiring a real estate attorney to review the sales contract and closing documents before signing anything is the best way to ensure your best interests are met.
Post-Closing Must Do’s!
- File for homestead and other tax exemption that apply to you. In certain states, homeowners can take advantage of what’s called homestead exemption for their primary residence. The requirements and amounts for this vary from state to state.
- Other tax exemptions to be aware of include Senior Citizen and Disability, Military Veterans, Renovations, Energy Incentives. You'll find a more a detailed list here. Ask your lawyer or agent what exemptions may apply to you.
- Ignore the scam mailers. You’ll get a lot of junk mail that may seem like they’re offering you a deal on mortgage life insurance or a certified copy of your deed. Don’t fall for them.
- Look out for Notices of Servicing Transfers. The company you send your monthly mortgage payments to may change. You should be notified of any of these transfers before they happen.
- Be aware of open Home Equity Line of Credits (HELOC), mortgages, and other instruments from the previous owner that may miss recordation. The title company is required to follow up with the county or lender of the previous owner to ensure all instruments listed in the title commitment are satisfied in the public record. Unfortunately, the chain of paperwork from title company to lender to municipality can be broken. This doesn’t happen often, but when it does, it can cause you a huge headache when you go to sell your property. Ask the title agent at your closing what the required time frame for recording these documents is in your area and follow up with them to make sure it’s in the public record.
Learn more about how third party title support services, like release tracking, help title agents avoid these issues.
Key Takeaways for Home Buyers
If you’re too busy to review the entire series, here are the major things to consider when buying your first home:
- Know your budget and stick to it.
- Get a homeowner’s title insurance policy.
- Be aware of how unrecorded municipal debt may affect you.
- Make sure you understand all your closing costs and who pays for what.
- Hire a real estate lawyer or a buyer’s real estate agent to review the contract and represent you and your best interests at the closing table.
- Review every document you sign carefully to make sure you understand and agree to all the terms. Ask your attorney, agent, or lender for clarification if you aren’t sure about something.
- Be sure to take advantage of homestead and other tax exemptions that apply to you and follow up with your title company to make sure all instruments from the previous owner are recorded.
Learn more at consumerfinance.gov/owning-a-home!