If you’re in the process of closing on a home, get ready to dive into a pile of crucial legal documents. These closing documents are essential for finalizing the real estate transaction, but they can seem daunting, especially if you’re a first-time homebuyer transitioning from renting or living in an apartment. In this Redfin article, we’ll walk you through each key closing document’s significance in your home purchase journey, helping you grab those keys and settle into your new place quickly.
In this article:
Understanding Closing Documents
Closing documents encompass the legal forms signed by both you and the seller during the closing process. These documents outline the final costs for the buyer and validate the sale for the seller.
Although the paperwork may seem overwhelming on closing day, each form plays a crucial role in confirming your loan terms and the actual amount you’ll pay at the end. The specific forms you sign can vary depending on your state’s property laws. Your real estate agent or attorney can guide you on any additional requirements in your state.
Having a grasp of these documents beforehand can make the closing day more manageable and allow you to confidently seal the deal on your home purchase.
Closing Disclosure
The Closing Disclosure presents all the financial details of your mortgage and total closing costs. Your lender must provide this at least three business days before closing to give you ample time to review it.
Thoroughly reviewing the Closing Disclosure is crucial to understanding the loan terms, projected monthly payments, and closing fees. Don’t hesitate to seek assistance from your real estate agent if you encounter any queries during your review.
Proof of Homeowners Insurance
While the decision on how much homeowners insurance you need lies with you, your lender will require proof on closing day to safeguard their investment and your new home from unforeseen events like fire, vandalism, and natural disasters. Contact your insurance provider as soon as you have the closing date to ensure coverage commences on that day.
To demonstrate coverage to your lender, request a declarations page or the full policy from your insurer. For new policies, they might issue a temporary insurance binder until the final documents are prepared.
Loan Application
Although you likely completed this document earlier, the loan application is included among your closing documents for a final review and signature. Scrutinize it carefully to ensure all information remains accurate. If any of your financial circumstances have changed, such as your job or income, inform your lender promptly.
Promissory Note
This written agreement between borrower and lender is a legal document affirming your commitment to repay the mortgage. It delineates the total loan amount, interest rate, payment schedule, and the consequences of defaulting. By signing it, you pledge to repay the loan as per the specified terms.
Mortgage or Deed of Trust
The inclusion of a mortgage or deed of trust in your closing documents depends on your state of residence. Both documents serve as security in case of payment default. Signing the mortgage or deed of trust legally secures your home as collateral for the loan, granting the lender the right to foreclose or sell the property in case of missed payments.
Affidavit of Title
This sworn statement from the seller confirms their ownership of the property, authority to sell it, and absence of any legal claims like property liens. It offers protection to you and your lender against potential title issues in the future.
Title Insurance
Title insurance shields you and your lender from title-related complications such as liens, unpaid taxes, or ownership disputes, which could result in financial losses. Carefully reviewing these closing documents is imperative. Consult your real estate attorney or title company to ensure the accuracy of all details.
Initial Escrow Statement
Certain expenses like property taxes, homeowners insurance, and tax prepayments are paid from your escrow account. The initial escrow statement outlines what your lender anticipates paying from it and your monthly contribution to cover these costs in the first year.
Transfer Tax Declaration
In some states, signing a transfer tax declaration is necessary to document taxes owed from a home sale. Each state has its regulations, so understanding your local laws and their impact on your closing costs is essential.
Certificate of Occupancy
For buyers of new homes, the certificate of occupancy confirms the property’s compliance with safety standards and local building codes. Typically issued by the builder, it can also be obtained from your local zoning authority. Although not mandatory for preowned homes, you can request it to verify proper permitting for any renovations.
Deed
The deed is the legal document that formally transfers ownership from the seller to you. Unlike the title, which indicates property ownership, the deed records the actual transfer and is filed with your local government.
Frequently Asked Questions about Closing Documents
How can I obtain copies of my closing documents?
You should receive copies of all signed documents at closing, but feel free to reach out to your real estate agent, title company, or county recorder’s office for additional copies.
Are closing documents the same for buyers and sellers?
No, buyers and sellers have different sets of closing documents. Sellers mainly sign documents related to property rights and ownership transfer, while buyers sign financial documents like mortgages and insurance. Some documents, such as the deed, are signed by both parties.
Do I need a real estate agent or attorney to review the closing documents?
While not mandatory, it’s advisable to have a professional review your closing documents to ensure accuracy and comprehension. Particularly for complex transactions or per state requirements, having a third-party professional assist you is beneficial.
How long does it take to sign closing documents and close on the house?
The closing process typically takes between 30 and 60 days after your offer is accepted, but signing the documents usually occurs in less than a day. Ensure to review all details diligently in the days leading up to closing to prevent any errors or delays.
Can I sign closing documents remotely?
Yes, remote signing of closing documents is possible. Specific states have guidelines for remote closings, so consult your real estate agent or attorney for instructions on navigating the online process.
Concluding Thoughts on Closing Documents
Equipping yourself with an understanding of these pivotal closing documents will empower you to tackle the paperwork on closing day with confidence. Take the time to carefully review everything before signing. Once you’ve conquered the paperwork, grab those keys and celebrate the successful closing on your new home.