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About The Homebuying Process
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The Closing Process
Closing is the final step in the homebuying process. At the closing, you’ll settle all the financial details associated with the purchase and receive the title to your new home. There is no standard closing process that is followed in all areas of the country. Most closings are conducted by a closing officer of a title company. The closing officer makes sure all necessary documents are signed and verified, and the money from the sale is properly distributed.
What Buyers Should Bring to the Closing
As the buyer, you should bring the following to the closing:
- Binder for Hazard Insurance and Paid Receipt Before going through with the closing, the closing officer will confirm that you have your binder for hazard insurance (also called homeowner’s insurance) and your paid receipt for the first year’s premium. Unless you can prove that you have adequate hazard insurance for the home you’re buying (coverage needs to be for at least the mortgage amount), the lender will not issue the mortgage loan.
- Certified or Cashier’s Check You will need a certified or cashier’s check for your down payment and closing costs. To find out the exact amount you’ll need, contact the title company the day before the closing.
The Deed
One of the most important documents in the real estate transaction is the deed. This is the legal document that transfers ownership of the property from the seller to the buyer. The deed should be prepared before closing, and your attorney and the title insurance company should review it. Any mistakes on the deed could affect your ownership of the property so they must be identified and corrected before you close the purchase.
At the closing, the closing officer will review both the deed and the commitment for title insurance, making sure the legal descriptions on each document match exactly. After the closing, the closing officer will take care of recording the deed in the county where the property is located.
Title Insurance
When you buy a home and obtain a mortgage loan, you’ll be required to purchase title insurance. This protects your legal ownership of the property you buy as well as the lender’s lien. The insurance policy will be subject to certain exclusions and exceptions. Before issuing the insurance, the title company will search public records thoroughly to determine the exceptions to coverage, such as any liens or restrictions that affect ownership of the property.
For example, if the seller failed to pay property taxes, the government would have a lien against the property. The property could be seized and sold to pay off the seller’s back taxes. If you were to buy the property without knowing about the unpaid taxes, you could end up having to pay the back taxes yourself or risk losing the property.
Prior to your closing, the title company will issue a commitment for title insurance. This commitment will indicate:
- The parties to be insured and the amounts of coverage
- The current owners of the property
- The legal description of the property
- Any requirements that must be met for the insurance to be issued
- All exceptions to coverage, including recorded items affecting title to the property, such as mortgages, easements, building and use restrictions, and liens
The commitment for title insurance is not the actual insurance policy, but it guarantees that the policy will be issued if conditions specified in the commitment are met. In almost all real estate transactions, separate title policies will be purchased for the lender and the buyer. The lender’s policy is typically purchased by the buyer, and it covers only the amount of the loan. The buyer’s policy, which insures you, the buyer, is for the full selling price and it is often paid by the seller.
Closing Documents
The Mortgage Note: The mortgage note is your promise to repay your loan. It indicates the terms and conditions of your loan and how it will be repaid.
The Mortgage: The mortgage is a separate document that you sign at closing pledging your home as security for the loan. In some states, buyer(s) sign a Deed of Trust rather than a mortgage, but both documents serve the same purpose.
The HUD-1 Settlement Statement: This document was created by the U.S. Department of Housing & Urban Development (HUD) and is used in most residential real estate closings in the United States. It lists all the buyers’ and sellers’ closing costs and summarizes both parties’ transactions by showing how funds are transferred among the buyer, seller, lender, and any other parties involved in the sale. It also shows the net amount due from the buyers and the net amount that will be paid to the sellers.
The final activity at closing involves distributing the money generated by the sale. The closing agent is responsible for presenting checks to the sellers, the sellers’ lender (if there is an existing mortgage on the property), the real estate agents involved in the sale, and any others who may be indicated on the settlement statement.
Our website provides a helpful Closing Checklist that includes all the elements you’ll need to keep in mind during the closing process.
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