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The actual closing usually takes less than an hour. Numerous
documents must be signed including:
- The Mortgage
Note: Outlines the amount of the debt, repayment
terms and payment amount, the interest rate, any margins or caps for
ARMs, lender name (beneficiary), borrower name (mortgagor),
and other items required by the lender.
- The Deed Of
Trust (Mortgage): A deed of trust is a contract
between the borrower, lender, and a third party - a trustee.
The borrower transfers the property to a trustee for the benefit of
the lender as security for the borrower's loan. Not all states use
deeds of trust. Some use a mortgage which is the conveyance of an
interest in real estate used as security for repayment of a note. In
any event, the security instrument outlines the legal procedure
taken in the event of default. The security instrument is
usually recorded as a public document in the Register of Deeds
office in the county where the property is located
- Deed of Trust
Riders: If the loan is
an Adjustable Rate Mortgage (ARM), the lender will usually require
that a "rider" be recorded along with the security
instrument which outlines the conditions under which the repayment
terms of the mortgage can change and changes in escrow amounts.
- Truth in
Lending Statement - (Regulation Z): This is a federally required statement that states the actual
costs of the loan over the life of the mortgage and the annual
percentage rate (APR).
- RESPA or HUD
Settlement Statement: - (HUD1):
The closing statement outlines the final costs of the loan.
The borrower receives this document usually within 3 to 5 days
after loan closing.
-
Environmental
Disclosures: The lender will likely require a UFFI
certificate (Urea Formaldehyde Foam Insulation) and a Lead
Based Paint disclosure. The UFFI discloses to the lender the
possible existence of any Urea Formaldehyde present while the Lead
Paint disclosure informs consumers of the hazards of lead based
paint.
-
Hazard
Insurance Policy: The policy must have fire and extended coverage that covers
the loan amount with the lender indicated as "loss payee".
- Title
Insurance Policy: The lender will require a title
insurance policy that covers against loss in the event of a title
(ownership) dispute.
- Additional
Documents: Escrow
account statements which describe the monthly and yearly amounts of
"escrow" for taxes, hazard insurance, and any PMI (private
mortgage insurance) to be collected by the lender.
Once all closing documents are signed,
the deed and mortgage will be recorded at the Registry of Deeds and the
attorney will then "close" the loan disburse funds.
How Much Money Is
Needed At Closing?
The amount
of money needed at closing will depend on the following four items:
-
Any
remaining part of the down payment not submitted with the original
purchase offer (earnest money).
-
Out-of-pocket
costs for the loan including points and legal costs
(usually estimated in the "Good Faith Estimate" provided
by the lender at loan application).
-
Reimbursement to the
seller for any "non-realty" items such as fuel oil in
the tank, appliances not part of the real estate, and so forth.
-
Prepaids or
"reserves" for such items as property taxes,
insurance, PMI mortgage insurance, and flood insurance.
For any item that is required to be a
part of the escrow payments, the borrower "prepays" a portion
of the above expenses so the lender can make these payments to the
appropriate entity when due from escrowed (reserve) funds.
Usually 2 to 6 months is collected (prepaid) at closing for
property taxes, a full year's premium is collected for hazard insurance,
and usually 2 months payments of mortgage insurance. Mortgage insurance
may be paid monthly and does not require a full year's advance premium.
If required, flood insurance works the same way as hazard insurance.
Most lenders will require that you provide evidence of funds
available for the down payment and/or certain closings costs. If
you do not use the funds for purchase, you may do anything with these
funds after closing.
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