Mortgage closing: Know your paperwork to avoid surprise costs
Key forms you will sign at your closing appointment
- Promissory note: An agreement to repay your loan.
- Deed of trust: An agreement that your lender can foreclose on your property if your mortgage isn't paid.
- Initial escrow disclosure: The monthly payments you will put into escrow, and an explanation of how it is used.
The closing process varies state to state, from lender to lender and from loan to loan. Depending on your state's laws, a closing will consist of some combination of the buyer, seller, lender, an escrow-company representative, a title-insurance representative and attorneys all sitting around one table, signing a massive stack of documents. In some states, the necessary parties can all sign the documents separately. Some companies allow many — if not all — documents to be signed online, with no in-person meeting necessary.
Although the format of closing appointments may vary wildly, much of the necessary documentation is the same. As the Consumer Financial Protection Bureau (CFPB) notes, it's critically important to know as much as possible about the forms you should expect to sign when closing on your new house.
"Regardless of who performs the closing or where it occurs," the CFPB says, "there will be many important documents that you'll need to sign that will have lasting financial implications on your life."
At least three days before your closing appointment, your lender is required to provide you with the Closing Disclosure form, which details all of the costs and fees associated with your mortgage. It's best to compare this document with your Loan Estimate (which is provided to you shortly after applying for your loan) to make sure the terms are the same and no last-minute surprises have arisen.
Before the closing appointment, speak with your Realtor, lender and (if applicable) escrow company to see what you should expect. Often, the appointment can take several hours and involves going over complicated legal documents. You also can request to see the closing documents before the appointment, which affords you more time in a more relaxed environment to read over the forms and note anything that requires further explanation or clarification.
Among the several forms homebuyers will need to sign at closing are the following:
- Promissory note: This is, essentially, your mortgage agreement. By signing this document, you agree to repay your loan in the manner displayed on the note. It includes the amount you owe, your interest rate, the length of the mortgage and when payments are due. Be sure to examine this document carefully to make sure everything is correct, and if anything seems off, immediately contact your lender.
- Deed of trust: Also known as a mortgage or security instrument, this allows the lender to foreclose on your property if your mortgage isn't paid. It will include some of the basic information included within the promissory note, plus several other clauses. Again, if anything seems incorrect on this form, contact your lender before signing it.
- Initial escrow disclosure: This form details the monthly payments that you will pay into escrow, and how that money will be used.
The CFPB provides examples of each of these forms on its website, allowing buyers to familiarize themselves with the forms before the closing appointment.
Other forms also will be part of the closing, but those can vary by state. By requesting the forms ahead of time and discussing options with your Realtor and lender, you should have a good idea of what to expect when you walk into your appointment.
If you discover something you don't like during the closing process, or if you simply get cold feet, you are still able to walk away from the loan and the house before you sign your documentation.
"Don't sign if you don't understand the mortgage terms or if you think that you won't be able to pay back the loan," the CFPB advises.
Depending on the terms of your contract with the seller, however, you may lose your earnest money or any other deposit money you paid. If you feel like walking away, be sure to check with your Realtor and attorney to see what deposits you may forfeit.
Once all parties have completed the closing process, you will be officially a homeowner. At that point, all the work of purchasing a house is completed — with all the work of owning and maintaining a house ahead.