Understanding the Closing Process
Plan for home closing costs and learn more about what to expect when closing a home
The end of the mortgage process is known as closing. The closing process varies by borrower, city and state. So, to get a better understanding of how your closing will go, check with your lender or real estate agent. But, there are some elements of the closing process which remain fairly constant:
1. Necessary inspections and appraisals when closing a home loan
Once your purchase agreement is accepted, the closing process begins in earnest. You'll have to arrange for a home inspector to go through the property and make sure that everything is in good working order. A home inspection is almost always part of the purchase agreement, meaning that if the home does not pass inspection to your satisfaction, the deal is void or subject to re-negotiation.
A home appraiser will also look at the house and compare it to similar properties in the neighborhood to be sure its assessed value is close to the sale price. In the event the appraised value is significantly lower, it can delay the closing process. Another appraisal has to be ordered to corroborate the first assessment. Ultimately, if the house is valued at less than the selling price, the bank likely won't issue a loan for that amount and a new deal will have to be worked out.
2. Parties involved in the closing process
The inspection and appraisal are the tangible, visible steps in the closing process. There are several more professionals who become involved in the process of researching and closing your home loan behind the scenes:
- Loan processor: The loan processor takes your mortgage application and verifies that all associated documents match it. In other words, he or she will go through your tax returns, bank statements, debt information and more to make sure everything is accurate on the application.
- Title agent: In order for the house to change hands, its title has to be free and clear of any liens, meaning that no one else can have a mortgage or other debts that use the home as collateral. In that case, another financial institution or creditor would have a claim to the house. A title company will run this check on the home's title.
- Underwriter: An underwriter takes the application, appraisal, title and other relevant documents to review. He or she will then determine if you are eligible for the mortgage for which you applied. If it's determined that you don't meet certain criteria, you may be turned down as a borrower or presented with different home loan options.
3. Documents you'll sign on closing day
When the underwriter signs off on your loan, it's only a matter of time until closing day. This time can vary, but it will generally take a few days to get all of the paperwork together and the parties scheduled to come in and sign. When you close on a home, you'll sign documents which include:
- HUD-1 settlement statement: This details all costs associated with the closing, including points, fees, commissions and insurance.
- Truth-in-Lending statement: This document shows you the true cost of your loan by itemizing and adding up the principal, loan terms, interest rate and finance charges.
- Mortgage: This establishes that the lender has a claim against your house until you pay the mortgage in full, meaning the house can be foreclosed on if you default on your loan.
- Note: This specifies the official terms of both the mortgage and your agreement to repay it.
- Affidavits: These vary depending on your closing process. You may have an affidavit that affirms the seller met all requirements as set by the purchase agreement and inspection. You may also have an affidavit swearing the home is your primary residence and not for commercial use. Proof or a guarantee of homeowner's insurance is another typical affidavit.
- Proration agreement: This document outlines how you'll pay for the house during the month in which you bought it. For example, if you close on the 24th, you'll be responsible for paying the portion of the mortgage and utilities due between the 24th and the end of the month.
- Deed: This actually transfers ownership of the property to you!
4. Home closing costs
When you close, you'll have to pay the home closing costs, which are outlined in the HUD-1 statement, as well as your first month's mortgage and escrow fees. An escrow account combines your mortgage payment, property taxes and homeowner's insurance into one package. The closing agent or your real estate agent will outline this total amount for you prior to closing. The term 'escrow' refers to the fact that this account is held by a third party as opposed to being your personal bank account.
5. The length of the closing process
For the most part, conventional home loans will close in 30 to 45 days. This takes time simply because so much goes on during the closing, as noted above. However, there are things you can do to speed it up. Getting pre-approved for a mortgage can shave time off the closing process because it requires verification and review of necessary documents up front. You can also ask your closing and real estate agents about other ways in which to expedite the process. For example, if the current owner has already left the property, you may be able to negotiate a faster closing process.
Work with Citizens Bank on your mortgage
Reach out directly to a Citizens Bank home loan originator for more insight into the closing process. Just call 1-888-514-2300 to get your questions answered.