Closing on a home loan can seem complicated and overwhelming, with stacks of paperwork, multiple parties involved, and a lot of money changing hands. However, understanding the step-by-step process that occurs during a typical loan closing can help you feel prepared and make the experience go smoothly. In this article, we’ll walk through exactly what happens before, during, and after a mortgage loan closing.
Overview of the Loan Closing Process
The loan closing, also called settlement, is the final step in the homebuying process for financed purchases. It’s when you officially become the legal owner of the home and take on the loan obligation.
Closing usually happens 30-45 days after an offer is accepted. The buyer, seller, lenders, and real estate agents will coordinate the time and location.
Here’s a quick rundown of what happens
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Before Closing Finalize loan approval, complete the home inspection, obtain homeowners insurance, and confirm closing date and details
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During Closing: Meet to sign closing documents and legally transfer property ownership. The buyer brings a cashier’s check to cover closing costs.
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After Closing: Buyer receives property keys and can move in. Loan servicer handles mortgage account and payments going forward.
Now let’s look at the specific steps in more detail.
Before the Loan Closing
Get Loan Approval
After applying for a mortgage preapproval and having an offer accepted on a home, you’ll go through the full underwriting process for final loan approval. This involves submitting documents to verify income, assets, and other financial information.
Take care of any underwriting conditions quickly to avoid delays. You’ll get a closing disclosure 3 days before closing that confirms your loan details.
Home Inspection
A professional home inspection allows you to identify any issues with the property before legally owning it. Inspectors check the roof, foundation, electrical, plumbing, and more.
If problems arise, you can ask the seller to make repairs or adjust the purchase price.
Secure Homeowners Insurance
Lenders require home insurance to protect the property used as collateral for the mortgage loan. Shop around to find the right amount of coverage for your situation.
You’ll need to provide proof of homeowners insurance before closing.
Know Your Closing Date
Your real estate agent will coordinate with the seller’s agent to set a closing date – usually the day you can receive keys and move in. Make sure the seller will be moved out by closing.
You’ll need to arrange professional movers or rent a truck to be ready.
What Happens During Closing
Closing is your last in-person step in the homebuying journey. Here’s how it goes:
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You’ll meet at a title company or attorney’s office along with real estate agents, attorneys, and any other involved parties.
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Bring valid photo ID, a cashier’s check for closing costs, and your insurance information.
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The closing agent will walk through each document, explain it, and allow time for review before signing. There may be 50+ pages.
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Documents include the deed, mortgage note, settlement charges sheet, and more. Double check all the details first.
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Once everything is signed, you hand over the closing cost check. Ownership is officially transferred to you.
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Finally, you’ll receive the house keys and garage door openers to your new home!
After Closing Occurs
Congratulations, you’re a homeowner! There are just a few final steps:
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Record the deed at the local county clerk’s office to make the transfer public record.
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Your loan servicer will set up your mortgage account and provide instructions for making the first payment.
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Change over utilities like power, water, internet service to your name.
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Do a final property walkthrough before move-in to check for damage and test appliances.
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Start moving in and making the house your own. Enjoy your new home!
Key Closing Documents to Review
During closing, you’ll sign various documents that officiate the home purchase and mortgage loan. Here are some of the most important ones:
Closing Disclosure: Outlines all your final loan terms, interest rate, total costs to close, monthly payment, etc. Verify it matches your expectations.
Promissory Note: Legally binding document where you promise to repay the loan as specified. Details the loan amount, interest, timeline, and penalties if you default.
Deed of Trust/Mortgage: Gives the lender a lien on the home as collateral if you fail to repay the loan. Transfers title to you once the loan is paid off.
Deed: Transfers legal ownership of the property from seller to you. Gets recorded after closing.
Affidavits: Statements declaring certain facts or conditions to be true, like confirming you will occupy the home as a primary residence.
Carefully review each document before signing to ensure an error-free closing.
Be Prepared for a Smooth Loan Closing
Closing can feel chaotic with so much happening at once. Having an idea of what to expect can help ease some stress. Be sure to ask your real estate agent and lender any questions beforehand so you fully understand the process.
If you know what occurs during a typical loan closing, you can enter your closing appointment feeling confident and excited to finalize the property purchase. Enjoy your new home!
How Closing Works
Closing is the final step in the homebuying process in which the mortgage becomes official and the title is transferred to new owners. A closing agent, usually an attorney or official from a title or mortgage company, oversees the closing process, which takes place at a title company or escrow office.
The mortgage closing process varies from state to state. This process is called a closing because the escrow account used to complete the property purchase process gets closed. During closing, also called settlement or account settlement, the participants review, authorize, and date numerous legal documents.
Required Closing Documents
Here are the typical required closing documents you will likely face at the closing table:
- Required by federal law, the closing disclosure or statement lists all costs related to the property purchase, including loan fees, real estate taxes, and other expenses.
- The promissory note details the loan amount, interest rate, payment schedule, and length of the term. It also lists the penalties the lender can impose if the borrower fails to make mortgage payments.
- The deed of trust is a security instrument and also may be referred to as a mortgage, depending on the state where the property is located. The signed deed of trust pledges the property as security for a loan.
- In purchasing a property, a deed or document that transfers property ownership (or the title) is needed.
- The notice of right to cancel provides each borrower under the transaction a three-day window to cancel the new mortgage loan. If you are purchasing a property with a mortgage loan, once the closing documents are signed, you do not have the right to cancel.
What Happens On Closing Day?
FAQ
What is the loan closing process?
Closing, also known as settlement, finalizes the sales contract by resolving all obligations between the buyer, seller and any other involved parties. In simple terms, it’s the final step in legally transferring homeownership. Closing on a house is one of the most fulfilling moments in the home buying process.
Is closing day the day you move in?
Closing is the final step in the home-buying process. During closing, all outstanding fees are paid, escrow funds are cleared, and the buyer and seller sign the necessary documents to transfer ownership. Typically, you can move in immediately after closing, but several factors might influence this timeline.Sep 5, 2024
What is the 3 day rule for closing?
For traditional mortgages, the most noticeable is the three business-day waiting period between receiving your closing disclosure and the consummation date (often known as your closing day). This three business-day rule was introduced in October of 2015, and it applies to both original mortgages and refinancing.
Can a loan be denied after closing?