A guide to real estate closing documents for buyers

The final step in buying a home is closing day. But what exactly happens when you close on a house? You sign legal documents that obligate you to repay your home loan. You'll also create a security interest in the home you're buying, which will make you legally responsible for the property. It's a long list, so it's good to know what to expect and to understand what you're signing.

What are closing documents?

There are many documents you will need to sign at closing. Some documents finalize and fund your mortgage, while others finalize the sale and payments to the seller, and still others transfer legal ownership of the home from the seller to the buyer.

The exact papers you need to sign may vary slightly by state. Your lender, real estate agent, or attorney can provide you a list of the specific documents you need to sign at closing.

Loan application

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 to review and sign. Make sure you carefully review the application to ensure it's still correct before signing.

If your financial circumstances have changed since you originally applied, you must notify the lender. Suppose a buyer lost their job or has taken out another line of credit, for example. In this case, the borrower must inform the lender of these changes.

Loan Estimate

Your initial Loan Estimate may be included in the paperwork. You should have received this document within 3 business days of applying for your mortgage. You'll want to compare this with your Closing Disclosure and ask your lender about any discrepancies you don't understand.

Closing Disclosure

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 business days before closing.

Buyers should take the time to thoroughly review these documents to understand:

• Details of the loan terms
• Conditions
• Closing costs

Compare the Closing Disclosure with your Loan Estimate to make sure nothing unexpected has changed. By closely reviewing the Closing Disclosure, buyers will understand what they're signing and what they must pay at closing to finalize the deal. If changes are needed, it could delay the closing process.

Proof of homeowners insurance

Before closing, you must provide your lender proof of homeowners insurance. Lenders want to ensure the home is insured so that their investment is protected in the event of an unforeseen incident.

You'll need to contact your insurance company a few days before closing to ensure that they can provide proof of insurance to the lender.

Deed

A house deed details everything about a 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 to own your new home individually, in trust, in joint tenancy, or in other tenancies.

The county recorder's office 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 title to the property from the previous owner, and now you own it.

Mortgage or deed of trust

The mortgage or deed of trust legally securitizes your property as collateral for the mortgage. In other words, signing the document means you're agreeing to use your house as collateral.

A mortgage or a deed of trust is a security instrument. Whether you use a mortgage or a deed of trust depends on the state where your new home is located. The difference becomes significant if there is a mortgage default. If you default on a mortgage, foreclosure usually requires a court order. A deed of trust doesn't.

This document is recorded along with the deed in the county recorder's office. The deed indicates that the lender holds an interest in the property up to the outstanding balance of the loan. Essentially, it gives the lender the right to foreclose or sell the home at any time if you don't make your mortgage payments.

Mortgage note

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 is securitized with the mortgage, which means that if you default, your house will be sold to repay the debt.

The mortgage note often accompanies a promissory note, which outlines the terms and conditions for repaying the loan to the lender. The promissory note will also outline the financial details of repayment, including your interest rate and payment method.

Initial escrow statement

An initial escrow statement outlines the tax and insurance payments that are deducted from your escrow account during the first year of your mortgage. Your escrow account is used to make payments on your behalf. An escrow account may or may not be required.

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.

Title documents

The primary title document is the title insurance commitment. This document indicates who owns the home and whether there are any liens or other encumbrances 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.

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.

Final tips for closing day

Make sure you talk to your lender, real estate agent, attorney, and title company rep about what documents to expect at closing. Here are a few other tasks to consider when closing on a home:

• Bring your driver's license or other identification with you.
• Put the utility bills for your new home in your name.
• Take your name off the utility bills for your previous home.
• Ensure that you and the seller have a clear understanding of when you will take occupancy of the home and when you will receive the keys.
• Review your moving plan one more time to ensure the timeline and other details still align with your needs.
• Talk to your real estate agent about the final walk-through before closing and what to look for.

The bottom line: Closing documents seal the deal on your home purchase

Buying a home can sometimes seem 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 home.

If you have more questions or are ready to start the home buying process, apply online or give us a call at (833) 326-6018 today!