Closing the Loan
Let me explain what a closing actually is and why it is called
a “Closing”
Picture in your mind a box that you have placed all the most important
memories of your life that you wish to share with the special people
in your life. The last thing you would do is what…close the box securely
to protect your valuables, right? That in so many words is a loan closing.
You should have a copy of all the paperwork you have received to this
point with you in case you have to reference something. All agreements
in the Sales Contract are very important to have at this time. All discounts,
fees being paid by seller, credits by the broker, etc. should match the
HUD exactly.
You will need to provide a copy of your drivers’ license at closing so
be sure to have it with you.
Inside Information
Always try to schedule your closing between the 6th and 25th of the month
and between the hours of 11:00 AM and 3:00 PM in the afternoon. During
the off-peak days of the month, you will have an easier time reaching
all parties involved in the closing, especially the closing attorney
or closing agent. You will find that there are fewer mistakes and faster
service for all the title work and document preparation as well. The
purpose for the times in the middle of the day is to allow time for the
lender to wire all funds to the closing attorney that day. Early morning
closings mean all the paperwork has to be completed the night before
and approved by the lender with the funds wired by the end of the day.
The latest time for electronic wires of money to be sent is 4:00 eastern
time. If the funds are not available, the closing is generally held up
by the attorney, especially during the recent mortgage crisis. |
Once all the terms of the home purchase have been agreed upon by buyer
and seller, you have done your due-diligence and shopped the best loan
rate and terms with multiple lenders, it is now time to close the deal.
You will begin signing a small mountain of documents agreeing to repay
the money borrowed, certifying that the information you provided the
lender is true, you understand and agree to the terms and conditions
of the loan, and that you are pledging your home as collateral for the
loan.
The most important items for you to understand at this point are:
- Where all the money actually goes on the HUD-1
- How much you owe at this point to close the loan
- If there is a right of rescission with the loan, meaning
if you get buyers remorse, can you change your mind and get
out of the loan within a certain period?
- If you later discover there is a problem with the closing
statement, who do you call?
Please understand that the closing attorney does not work for you in
most cases. The attorney or closing agent is representing
the lender and only drafts the documents as provided by the lender. The
attorney can generally correct name spellings or minor grammatical errors,
but can not re-write the documents or terms.
THE HUD-1 SHOULD NEVER HAVE WHITE-OUT, CORRECTIONS, OR CROSS-OUTS ON IT
- EVER! ALL CORRECTIONS REQUIRE THE ATTORNEY TO PREPARE AN UNALTERED
DOCUMENT BEFORE YOU SIGN. NO EXCEPTIONS!
STOP!!! The HUD-1 is your friend and is generally prepared
for all loan closings, though some attorneys do a closing statement that
is simple and easier to read. If you are closing a government insured
loan such as a FHA (Federal Housing Administration) or VA (Veterans Administration),
you are required to have a HUD-1 settlement statement at closing. If
there is a financial item or agreement within the transaction, the HUD
will usually spell it out. The HUD only shows monies that come out of
your loan or that you or the seller agreed to pay. If you are bringing
money to closing for down payment or closing costs, that will show on
line 303 and the box from borrower is checked. The Yield Spread money
from the lender to the broker doesn’t show up on the HUD.
The HUD-1 is prepared by the closing attorney and is generally sent to
the lender for approval before you see it. Depending on the schedule
of your closing, you should be given the opportunity to review the final
statement hours before closing. In many cases, especially when you are
closing at the end of the month (the busiest time for closings) the HUD,
as it is known, is not perfected until moments before closing.
As the closing attorney reviews the HUD with you, please pay careful attention;
ask as many questions as needed to so you can understand the total financial
transaction. It is almost impossible to explain the entire HUD in this
document but we will endeavor to hit the most important points.
Section B Type of Loan
Make certain the type of loan you agreed to on the top right hand corner
of the Good Faith Estimate (GFE) is the one that is checked. If not ask
why and make certain the terms of your loan are what you previously agreed
to up front.
If not, STOP!!! Do not close until you are certain of all the terms of
the loan, the amounts, and costs. Ask the broker or lender if there are
new terms that need to be disclosed to you prior to your closing the
loan. Items such as broker incentives could make a huge difference in
the loan you end up with versus the one you were told you had in advance.
If the broker has switched you to a new loan program or product such
as from conventional to FHA or VA (if you are a veteran) it could be
because the broker can make extra money on the loan that you know nothing
about or has not been explained to you. When a loan product changes,
you are entitled to a new GFE and Truth-in-Lending or TIL. The GFE discloses
all the fees associated with the loan the TIL exposes the true cost of
borrowing the money. Some behind the scenes incentives to lenders may
not, and generally do not, have to be disclosed. All fees and incentives
to the Broker have to be disclosed.
On a shaded line below the 1000 line item of the GFE there is a line that
reads: Compensation to Broker (Not Paid Out of Loan Proceeds) and under
that, you will see a percentage number and disclosure like this example:
2% ysp (meaning yield spread) to broker – broker’s name
Section D, E, & G Borrow, Seller and Subject Property Information
Make certain all information is accurate and spellings are correct. If
the seller is not the same as on the purchase agreement, ask why. Watch
out for fraud!
Section J Summary of Borrower’s Transaction
Lines 100-113 total to line 120. Make certain these numbers are explained
to you thoroughly. Line 103 brings the totals from the second page of
the HUD, which breaks down all your expenses from lines 703–1308. The
total from line 1400 on the left column titled “Paid from Borrowers Funds
at Settlement” is where all your expenses related to the closing will
be found. The attorney alone should explain every number to you if asked.
Do not allow the broker or agent (if present) steer you or speak for
you or the attorney.
A bad agent or broker could present a forged document to the closing attorney
without your knowledge authorizing them to pay a fee to them or someone
else. If it looks like your signature, they will pay it without question.
Line 1110 Title Insurance Owners Coverage
It is recommended that you arrange with the closing attorney or Broker
to purchase a title insurance policy for you. The lender will purchase
their title policy and you’ll pay for it out of your closing costs. The
purpose of having the policy in your name is to protect your interest
if someone files a claim against you for something related to the boundary
lines, ownership issues or a host of other title related concerns. The
most common are property line disputes therefore, having a survey completed
in advance of closing is recommended.
Line 201 Make certain your full earnest money deposit is credited to you.
Line 210-214 deals with property taxes. Because taxes are dealt with differently
in every city or county, it’s impossible to tell you exactly what the
numbers are going to look like. For instance in some places taxes are
paid in advance so you may be crediting the seller money for what they
have already paid for the year and other municipalities pay taxes in
arrears, so you may be getting credited money from the seller.
Line 303 is where you see the amount of money you get at closing or the
amount of money you should have brought with you in the form of a cashiers
check.
Section K Summary of Seller’s Transaction
The seller is responsible for reviewing their side of the transaction
and ensuring the deal is what they agreed to in advance.
Closing Package
The closing attorney will prepare a package of all the documents you signed
(generally without your signature) for you at closing or they will mail
them shortly thereafter. I recommend you get a copy of the HUD-1 if no
other document at closing. The new title will be sent to you by the attorney
in a matter of weeks. Some municipalities can take up to six months to
get the title back from the County, so don’t panic if you don’t see it
quickly. You can always call the attorney to confirm it was filed immediately.
Store the entire closing package, the warrantee deed, and all other purchase
and financing related information in a safe, fire proof place for ever.
Never destroy any of your purchase contract, loan, or closing documents.
It is not uncommon for claims to arise against a property years after
you purchase or sell.
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