Congratulations! You have arrived at the mortgage closing process, described by the humorist Dave Barry as the "Ritual Closing Ceremony," where you "…go into a small room and write large checks to total strangers."
It doesn't have to be that way, of course. Understanding the required documents will make the process much easier – although there are still large checks involved. To make matters even simpler, you can get a document to study the day before closing to review if you know what to request. Here are the most commonly required closing items (some of these will be supplied by the lender):
- Identification – Bring a photo ID and verification of your Social Security number, such as your Social Security card or a W-9 form.
- Assessment – A property assessment is necessary to verify the current value of the home. Bring your assessor's statement with you for reference.
- Survey and Title – The title must be clear at closing, and the property boundaries verified by survey. This allows for clean transfer of the deed. Verify with your lender which survey and title documents are needed at closing.
- Insurance – Some first-time homebuyers do not realize that you must have homeowner's insurance lined up before closing. Bring verification of coverage with you.
- Home Inspection – This is optional, but wise. If you did not get a home inspection prior to purchase, you may indeed end up writing large checks to total strangers to cover significant repairs, or even structural damage.
- Escrow – A lender may ask for an escrow account to be established to handle insurance and property taxes, as well as future mortgage payments.
- Loan Estimate and Closing Disclosure – These are the documents you receive on or before the third business day after submitting your loan application that cover the loan terms and all the expected costs. They are estimates, but a large discrepancy between terms in these forms and at closing must be settled and understood before signing.
- Funding – As obvious as it sounds, you need to make sure you have sufficient funds available for the down payment and closing costs. Sometimes people are caught unaware by changes in the final closing costs or unexpected fees.
- Promissory Note – This is the note that contains your promise to repay and the terms of repayment, to be held by the bank until you pay in full or sell. It is a glorified IOU.
Depending on your mortgage type and other factors, a lender may not require some of the above checklist items. There are a host of other documents that may be required for your individual case, such as termite inspections, proof of flood insurance or flood zone verification, mortgage assumption statement if you are taking over an existing mortgage, and the mortgage servicing disclosure statement (whether the lender plans to hold or sell your loan).
Lenders should have a checklist for you to follow – it is in their best interests to make things go smoothly.
Make sure you ask your lender about closing expectations far enough in advance to get copies of all documents you need, and don’t forget to ask for the HUD Settlement Statement a day early. You can then enjoy a smooth closing, and relax in your brand new home with any remaining checks you have left in your checkbook.