A Guide To Real Estate Closing Documents For Buyers
Ashley Kilroy4-minute read
July 19, 2021
Closing on a home is a stressful endeavor. From packing your belongings to moving to a neighborhood to making sure all of your documents are ready to go, there are many things to do. To make the closing process more manageable, it's wise to take the time to understand the closing documents for the buyer. This article will help guide you through the paperwork you'll encounter so you can avoid surprises.
Proof Of Homeowners Insurance
Before closing, you must provide your lender proof of homeowners insurance. Lenders want to make sure the home is insured, so their investment is protected if something were to happen to the home. You’ll need to contact your insurance company a few days before closing to ensure that they have the home's accurate details and can provide proof of insurance for the lender.
A Closing Disclosure outlines all the terms of your loan, so you know exactly what you’re getting when you sign your mortgage. By, law home buyers must receive a copy of the Closing Disclosure at least 3 days before closing.
Buyers should take the time to thoroughly review these documents to understand the details of the loan terms, conditions, payments and funds required to close. By closely reviewing the Closing Disclosure, buyers will understand what they’re signing. If there are changes that need to be made, it could delay the closing process.
When you first applied for a loan, you completed an application. Before you close, you’ll receive a new copy of that initial loan application you filled out. You’ll review and sign your original application. Please make sure you also review all of the application information to ensure it’s still correct.
If your financial circumstances have changed since your original application, you must let the lender know. Suppose a buyer lost their job or has taken out another line of credit, for example. In this case, the borrower will have to inform the lender of these changes.
Your initial loan estimate is often included in the paperwork. This will cover terms, the interest rate, closing costs, and the cost of obtaining the mortgage overall. You’ll also receive this document within 3 days of the closing of your home.
A mortgage note legally binds you to repay the mortgage. The mortgage note includes the amount, interest, payment dates, terms and information on what will happen if you fail to make payments.
The mortgage note often accompanies a promissory note, which outlines how you need to pay back the loan to the lender. The promissory note will also outline financial details of repayment, such as your interest rate and payment method.
Deed Of Trust
A deed of trust is also called a security instrument. This document is an agreement that puts your property as collateral for the mortgage. Keep in mind, signing the deed of trust means you're putting your house up as collateral.
This document is recorded along with the deed in the county recorder's office, which shows the lender owns an interest in the property up to the loan's outstanding balance. Essentially, it gives the lender the right to foreclose or sell the home at any time if you don't make your payments.
Initial Escrow Statement
An initial escrow statement outlines the payments on taxes and insurance that will come from your escrow account during the first year of your mortgage. Your escrow account is used to make payments on your behalf.
Transfer Of Tax Declarations
Depending on the state you live in, you may have to sign paperwork that discloses your home's sale price and the sales tax you owe.
Certificate Of Occupancy
If you're moving into a newly constructed home, a certificate of occupancy is required before you can live in the house. This document should be included with the home buying package from your builder. This document verifies that you are moving your family into a safe, structurally sound home.
When you think you have signed enough paperwork, the title company and escrowee will give you a few more documents to sign. The primary title document is the title insurance commitment. This document shows who owns the home and any liens or other clouds on the title.
If you have hired an attorney, they will review the title documents to ensure the title is as promised and it’s acceptable to move forward. If you’re relying on the escrow company, they will review the documents to ensure they are in good order.
If the title is not up to par, the seller may have to pay off additional liens. Any delays may halt or prolong the closing process.
A deed details everything about the property. It transfers the title from the seller to the buyer and is signed by the seller. Your state law will determine the form and language for the deed. However, you can choose the form of ownership either individually, in trust, in joint tenancy, or other tenancies.
The county office of the recorder archives the deed information and makes it public. Therefore, if anyone were to look up the deed on your home, they would find that you took the title from the previous owner, and now you own the property.
The Bottom Line On Closing Documents
The home buying process is daunting and confusing. But it doesn’t have to be. Taking the time to gain the knowledge you need to navigate the home buying or selling process will better prepare you for purchasing your own home. Since closing on a home is a significant part of the process, you’ll want to get familiar with all of the closing documents you’ll encounter. It's also a good idea to make sure you know what you're responsible for and need to bring to closing.
If you’re interested in learning more about how to prepare for the purchase of a home, you can visit our Learning Center for resources and tools to equip you with the knowledge you need.
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