You’ve heard the term used before, but what does loan closing mean? Find out all you need to know about the process.
Leading up to the loan closing process you’ve completed a loan application, discussed loan options with your lender, received a Good Faith Estimate (GFE), submitted financial documentation, conducted a home appraisal and finally after an underwriter review, received an approval for your loan. Now all you have to do is close your loan. Congrats!
Read on to understand how your loan closes after you’ve receive a loan approval.
1. Final Review & Document Signing
First you’ll have the final review and document signing. At this stage in the process, all of the loan documents and agreements will be signed and notarized at the same time. We’ve discussed a few of the critical documents you will encounter during your signing in more detail within our previous article, The Most Important and Common Home Loan Documents.
On the day of signing you will have an opportunity to carefully look through each document in your loan package before you sign. Ask your notary to pull out the following documents to double check for accuracy and to make sure the loan figures and terms are what you were promised by the lender:
|HUD-1 Settlement Statement||Itemized list of all the charges/credits in the transaction.|
|Loan Note||The terms of your home loan.|
|Deed of Trust||Puts your property up as collateral for the loan.|
|Deed||Describes the property ownership|
The 3-Day Right of Rescission
Something important to note if you’re closing on a loan that’s a refinance, is that you have a three day right of rescission. This means that after signing your loan documents with the notary, you have the right to cancel the loan within three business days. Sundays and holidays do not count as 1 of the 3 days. The loan types that qualify for a three day right of rescission include:
- Cash-Out Refinance
- No Cash-Out Refinance
- Home Equity Line of Credit
- Home Equity Loan
If you’re acquiring a new loan you do not qualify for the right of rescission, so take great care to understand the loan terms the first time around.
Items you may need to bring with you for the document signing include: a valid state or federal I.D., a certified check to cover any closing costs or down payment if it’s a purchase loan, and your homeowners insurance. Double check with your lender or escrow officer about what to bring with you during your signing appointment. Once you meet all the conditions of closing, your home loan will be ready to fund.
By the funding stage you’ve agreed to the loan terms, signed all of your loan documents and waited for the 3-day right of rescission to pass. Now you’re loan is finally ready to fund.
The lender will conduct a final review and release the money to the title company, who will then conduct their own final review of the property’s title. The title company will then release all monies to the escrow company to disburse to all parties involved in the transaction.
It’s important to note that once a loan “funds” it does not mean that the loan is closed. Closing is only official after the next two steps are completed.
If you’re buying a new home, you will have signed a deed, which is an agreement transferring ownership of the home from the old owner to you (the new owner). The deed must be recorded with the county to officially state the new owner of the property. It’s highly important that you make sure your deed is void of any errors. Mistakes in the deed filing with the county may put into question your ownership of the home.
The recording of your deed will be handled by your escrow agent. This process may potentially take several weeks to several months after the closing appointment, depending on how busy your local agency is. It’s in your best interest to ensure that your deed is filed as situations may occur causing your deed to go unrecorded. If a deed isn’t filed properly, you will not be on record as owning the home that you’ve purchased.
Once your home loan is funded, the money will be disbursed to each party involved in the transaction. The closing agent will take care of distributing the money based on the escrow instructions from the lender.
Typically, the people in a transaction who will most likely receive money include the seller, seller’s lender (if the property has a current mortgage), your current lender (if this is a refinance), real estate agents and other service providers where noted.
When Do You Get the Keys?
If you’re closing on a new home, you’ll probably be ready to gain access right away. New homeowners receive the keys on the possession date which appears on the purchase agreement. If your possession date happens to be the date of your closing, you’ll receive the keys at the appointment and you can move into the home without delay. If your possession date is on another day, you should make arrangements to receive your keys at a later time.
The overall process of closing a home loan is well defined and systematic. Once you sign your loan documents experienced professionals take over the process from there. Signing loan documents can take several hours to complete so patience (and of course a brand new ballpoint pen) is required.
Something to consider is that closing may be prolonged if there are discrepancies located within the documents. Furthermore, if disputes arise during closing with a purchase, your funds may be held in escrow until both parties can come up with a resolution. For this reason, it’s important to thoroughly review the documents on the days leading up to closing to avoid delaying the loan closing process.