By Robyn A. Friedman (Special to Freddie Mac)
The key to a smooth closing on a house is doing everything you can to eliminate the element of surprise. Like getting approved for a mortgage before you shop for a house.
"Getting the mortgage approval first is a good way to check yourself and make sure you're making a good decision," said Bill Banfield, a vice president at Quicken Loans in Detroit. "You'll know exactly what you can afford." You will also help ensure you haven't underestimated how much down payment money you'll need to close.
Now, let's fast forward. You've received your mortgage commitment (i.e., your loan application was approved), your offer was accepted, and you have a signed contract for your dream home. Here's what to expect – and how to minimize the unexpected – on the complicated, confusing, and sometimes mysterious path to closing (a.k.a settlement) on your home.
- You have to satisfy any and all of the conditions that came with the mortgage commitment, like providing bank records or tax returns. Other conditions, such as a satisfactory appraisal, title search or surveys, are handled by other parties. Either way, you can't close and the mortgage is not a done deal until all conditions are satisfied.
- Choose an insurance company and buy a homeowner's policy covering your future home. "Nail down who you're going to use at least a week to 10 days prior to closing so we can get definitive insurance quotes to include in the final closing disclosure," said Steve Chaney, a loan originator with U.S. Mortgage of Florida. According to Chaney, waiting "holds up a lot of closings, because if the buyers are shopping around and we're three days from closing, we can't complete the final closing disclosure."
- Review the Closing Disclosure. The old HUD-1 and final Truth-in-Lending forms have been replaced by the Closing Disclosure form from the Consumer Financial Protection Bureau. The Closing Disclosure must be sent to you three business days before the consummation of the loan. Review it carefully for errors and be sure to have any errors fixed.
- Choose a closing agent. That may be an attorney or title company, depending on where you live.
- Ask your closing agent for an estimate on how much money is needed to close – this will cover funds needed for down payments, escrows, other fees and taxes.
- Ask your lender how long they need to wire your funds to the closing agent's account. Initiate the wire in plenty of time. Be wary of emails or phone calls instructing you to send money to an unfamiliar account. Confirm instructions with your real estate and/or closing agent to avoid settlement fraud.
The actual closing takes place in two parts.
- During the mortgage closing, the buyer signs all the papers for the lender and becomes obligated for the loan.
- During the title closing, title is transferred from seller to buyer. A closing involves a flurry of paperwork and can be intimidating for a first-time buyer.
While the closing process may seem daunting, it can go smoothly if you prepare, read everything and don't hesitate to ask questions.
Follow this series just in time for the spring homebuying season.
Robyn A. Friedman is an award-winning business journalist whose work has appeared in The Wall Street Journal, Mansion Global, City & Shore magazine and Ocean Drive.
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