You found a broker, chose to get a fixed rate mortgage, and locked in a killer interest rate, what happens now? Your broker is going to set you up with a Title company who is going to close your loan.
What is a Title Company
A Title company is responsible for clearing your title and closing the loan. They will perform title searches in an attempt verify a “clean title”. They will also provide the title insurance policy to the lender, conduct all appropriate title work, and schedule your closing. Much of the paperwork prepared by your broker will have been updated during underwriting, and finalized by the title company.
The Closing Documents
When people say that you are signing your life away at closing, it really does feel like you are signing your life away. The documents from my refinance stand a good half inch thick. Lets look at what each of these documents are and what they are for.
Notice of Right to Cancel: This is notice telling you that within 3 days of entering into the agreement you have the right to cancel it. This gives you three days from signing to change your mind and back out. You will receive one for each signor on the loan. My friend who has been brokering mortgages for quite a long time now has never had anyone back out.
Truth In Lending Disclosure: This document lists the pertinent information from your loan in a single page document:
- APR as a yearly rate, (will not match your quoted APR)**
- total amount of finance charges to be paid,
- amount of the loan,
- total of the payments,
- payment amount,
- first payment due date,
- prepayment penalty information, and
- late charge information.
Itemization of Amount Financed: Includes a listing of all fees for the loan being closed on, certain fees may need to be deducted from the original mortgage amount to determine the calculated APR on the Truth in lending. This causes your APR to show higher on the Truth in Lending than the stated APR.
Settlement Statement (HUD-1): This is the grand daddy of the forms included in your package. It will look a lot like your initial Good Faith Estimate, odds are the amounts are different however. You should carefully look over this document and make sure all of the fees are correct, check names and amounts. Commisions paid out to realtors and brokers are going to be disclosed at the top of page 2 of the HUD-1. The linked title will open an additional page with a blank HUD-1. If you are buying a home you will see fees etc. in both columns of the settlement statement representing buyer fees on the left and seller fees on the right. Refinances will have only the buyer’s column completed. GO OVER EVERY ITEM AND MAKE SURE IT IS CORRECT. If you didn’t do it at the closing you only have three days before you are stuck with it.
Note: I didn’t forget any words, this is your actual contract with the lender, commonly referred to as the “Note”. This is going to include the details of your loan and contract with the lender. Including things like your initial balance, interest rate, payment date, payment amount, charges, late charges, grace period, and other details of the contract. I can’t stress enough how you need to actual verify the facts in these documents. I had a friend show up to close on his loan only to find the interest rate on the closing documents was wrong and they were charging him points which weren’t previously disclosed. Pay Attention!
Deed of Trust:This painstakingly lengthy document covers all of the details regarding the property being purchased/refinanced, definitions of the lender and trustees, provisions and requirements of the mortgage, and acceleration clauses. You should definitely read over the document although you probably won’t have time to get through it all at closing, mine was 19 pages long.
Mortgage Payment Letter: Outlines what your payment will be in total, including principal, interest, taxes and insurance.
Initial Escrow Account Disclosure: Discloses your amounts being paid into escrow, including your initial balance, and projected payment dates and amounts for insurance and taxes.
Servicing Disclosure Statement: This document tells you whether or not your loan will be serviced by the initial lender, they have three options on the form either they may service your loan, won’t service your loan, or will service your loan. My refinance has the middle box checked so I can expect to never have to make a payment to my lender as they intend to sell my loan prior to the first payment being due.
IRS Forms: Our package included a W-9 for verifying our taxpayer identification numbers as well as a 4506 to authorize a request for a copy of our tax returns.
Fact Act Notice: Notifying you that they may report to the credit bureaus if you have late or missed payments
Loan Amortization Schedule: A Payment by payment breakdown of your loan for all payments in the loan. Ours had 240 lines showing the amount going to principal, amount to interest, and remaining balance.
Name Affidavit: This document is used to certify your name(s). Mainly for females who have had a name change, they certify that both their married and maiden names are theirs.
Application Documents: We were provided with copies of all of our application documents in addition to the actual closing documents, these were provided for our records.
Now that you initialed every page, signed four times in ten places for every set of docs you either own the house or a new mortgage. Your hand probably hurts and you are probably wondering what just happened. Go out get a drink, probably a stiff one, and toast to your last month without the single largest bill most Americans have. It is not a terrible process to close on a loan but a lot people get nervous, don’t worry about it just make sure you check the document for accuracy and enjoy your new digs or lower payment.
The Rest of Mortgage Week:
05/05 – What is a Mortgage Broker
05/06 – Fixed Vs. ARM Rate Mortgages
05/07 – Par Rates, Points, and PMI