What happens at the closing?
The real estate closing (sometimes called the settlement) is the final stage in the process of buying a home. The closing is a meeting at which the buyer and the seller, usually accompanied by their respective lawyers and real estate agents, complete the sale. At this meeting, the buyer usually signs the promissory note and mortgage and obtains the lender's proceeds. The buyer is then able to make all the required payments due to the seller. The seller produces all documents necessary for the transfer of good title and delivers a deed that transfers the title to the buyer.
Before the closing, the parties and their lawyers will review all documents to see that everyone is fulfilling all conditions and promises of the contract. A closing statement or settlement sheet is prepared, fully listing the financial aspects of the closing. The Real Estate Settlement Procedures Act (RESPA) will apply in any transaction in which a buyer is obtaining a federally insured mortgage from a financial institution. This requires use of a settlement sheet developed by the Department of Housing and Urban Development that sets forth all credits and payments made at closing. In other closings in which the buyer is not obtaining a mortgage, another form of settlement sheet may be used.
Both buyers and sellers should expect to sign a lot of papers at the closing.
Buyers should expect to sign or provide the following:
A promissory note promising to pay in full the loan and interest
The mortgage document, which secures the promissory note by giving the lender an interest in the property and the right to take and sell the property--that is, foreclose--if the mortgage payments are not made
A Truth in Lending form, which requires the lender to tell you in advance the approximate annual percentage rate of the loan over the loan's term
A typed loan application form
A payment letter telling the buyer the amount of the first payment and when it is due
A survey form stating that the buyer has seen and understands the survey of the property and that it fairly depicts the property
A private mortgage insurance application or disclosure, usually required on loans with a down payment of less than 10 percent
A termite inspection or other inspection form, indicating that the buyer has seen a report of any inspections that were made
A homeowner's insurance policy (in the case of a single-family home)
An affidavit from the buyer stating that the buyer has the legal right to mortgage the property and that there are no liens or encumbrances (judgments, mortgages, or taxes owed) on the property
If the buyer has used more than one name, an affidavit stating that the various names all refer to the same person
An agreement to cooperate with the lender to correct any errors or omissions in the loan documentsThe seller can expect to sign or provide the following documents:
The deed transferring title in the real estate from the seller to the buyer
A bill of sale transferring ownership of any personal property that may be included in the sale of the real estate
An affidavit of title in which the seller states that he or she has the legal right to sell the real estate and that there are no liens or encumbrances (judgments, mortgages, or taxes owed) on the property
An affidavit as to mechanic's liens and possession indicating that the seller has not had any work done on the property that would give rise to a mechanic's lien and that there are no parties other than the seller entitled to possess the property
An occupancy certificate indicating that a new home complies with the local housing code
A 1099-S reporting certificate verifying the terms of the sale and the seller's tax identification numbers for IRS reporting purposesBoth buyer and seller will have to sign the following:
An affidavit specifying the purchase price and indicating the source of the purchase price. This affidavit assures the lender that the buyer has not received any undisclosed loans from the seller that could negatively affect the buyer's ability to repay the lender's loan;
A RESPA form developed by the federal Department of Housing and Urban Development and sometimes a separate closing statement, specifying all costs associated with the transaction.
Transfer declarations as required by state or local authorities.
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