What happens at Closing?
When you refinance your mortgage, closing day can be a whirlwind. Everything moves fast and there are a lot of papers to sign, just like when you first purchased your home.
Who will be there?
The number of people who will attend your closing depends on many factors, including the state where the property is located, the property type, and more. At the closing, in addition to you, the people attending may include:
- your attorney (if you have one)
- a lender's representative or your title company (in some cases)
- the closing agent (which could be a representative from the title company or a real estate attorney)
- a notary public
What happens at closing?
- The closing can be held at the title company’s office, your lender’s office, a real estate attorney’s office, or other agreed-upon location, depending on the circumstances. Here’s a review of what will happen at closing:
- You’ll review and sign all of your loan documents. Make sure that each document is explained clearly and that you understand the terms to which you are agreeing. If something is different than what you expected or agreed to, don’t sign until the issue is resolved to your satisfaction.
- You’ll provide evidence of required homeowners insurance and inspections (if applicable)
- You’ll give a certified or cashier’s check to cover your closing costs, prepaid interest, taxes and insurance.
- Your lender will distribute the funds covering your home loan amount to the closing agent.
- Depending on your loan terms, you may also be required to set up a new escrow (or impound) account with your lender, so you can pay your property taxes and homeowners insurance along with your monthly mortgage payment.
What are you signing?
The main focus at a closing is to sign the final paperwork. The four main items to review and/or sign during closing are:
Closing Disclosure (CD): The itemized list of your final credits and charges, based on the terms of the contract. You should receive a copy of the CD for your review at least three days prior to the closing.
Do not sign your Closing Disclosure if it’s significantly higher than your Loan Estimate (see the Understanding the closing costs section of the article for more about the Loan Estimate), if you see a different rate on your loan than you agreed on, or if there are any additional clauses in your paperwork that weren’t explained to you. Don’t sign anything until you can resolve these issues with your lender and are satisfied with all the terms of your loan. If you can’t resolve these issues and you haven’t signed anything, you are free to walk away. Don’t feel pressured.
Deed of trust or mortgage: The documents in which you agree to a lien on your property, as security for repayment of your home loan.
The promissory note: The mortgage (or promissory note) is a legal “IOU” that represents your promise to pay the lender according to the agreed terms, including the dates on which you must make your mortgage payments and where they must be sent.
Estimating closing costs
You will also pay closing costs when you sign your final mortgage loan documents. Typically, you can expect to pay about 3% of the total loan amount in closing costs, although that number will depend on the state in which you are refinancing in and the type of loan you choose.
Understanding the closing costs
You will receive a Loan Estimate (LE) several days after submitting an application. The LE is an estimate of your loan’s costs.
There are many elements that may go into your total closing costs, including: discount points, recording fees, origination fees, appraisal, notary fees, attorney fees, title insurance, and more, depending on your loan program and where you live. Ask your lender to give you an overview of all the fees in your mortgage and to explain any you don’t understand.
Prior to closing your loan, you’ll receive your final Closing Disclosure listing your final closing costs. Many of these costs you’ll know ahead of time, as they were listed in your LE.
Once you’ve determined your closing costs, be sure to bring a certified or cashier’s check for the amount of your closing costs. You’ll need to provide those funds at closing. Typically personal checks aren’t accepted, so make sure to check with your closing agent about which form of payment is acceptable.
Some fees on your Loan Estimate and Closing Disclosure are paid before closing. This means the fees have already been paid upfront or must be paid separate from your closing costs. This commonly includes fees for credit reports and appraisals that you will usually pay in advance. Other fees paid outside of closing may include those paid by your lender to a mortgage broker, but these are usually included in the interest rate or other settlement charge and are not an additional cost to you.
Closing on your loan is exciting—whether it’s your first or your tenth. With the right amount of preparation, you’ll enjoy the experience even more.