Finally! The deal is done. Those countless Sunday afternoons cruising open-houses around Myrtle Beach and up and down the Grand Strand are over. You may even miss the countless hours talking to The Trembley Group Real Estate Sales Executive about what is important and what’s not important in a home. You certainly won’t miss the anxiety of the mortgage application process.
But now the payoff is huge. Soon you’ll be arranging the furniture on those beautiful hardwood floors and cooking dinner in the gourmet kitchen. The house is exactly what you told The Trembley Group Real Estate Sale Executive you wanted. After a few negotiations, the seller accepted your offer and the house is just about perfect.
You liked the mortgage broker the Sales Executive recommended you to, and after clearing up the little credit glitch, the mortgage was approved. And now, with the mortgage approval in-hand, the only thing standing between you and your new home is the closing in the offices of the attorney recommended by your Sales Executive. So just what is a real estate closing? What exactly happens at closing? And what can be expected?
Sometimes referred to as a settlement, the closing is the final step of a real estate transaction. The closing is handled by a neutral third party. By law, in South Carolina, the closing agent is always a real estate attorney. Closings involve loads of legal paperwork, including the deed, which grants legal rights and is signed by the seller and given to the buyer. The deed will then be registered with the county in order to protect the ownership rights of the new owner. Keys are also given to the buyer by the seller. Finally, the seller gets a check for the net proceeds of the transaction – the sales price minus the seller’s closing costs and what they owe on their original loan if anything. And let’s not forget the mortgage documents signed by the buyer. At a closing, major events include:
A Home’s Title (And The Keys) Are Transferred
What’s the difference between a deed and a title? Most people use the terms interchangeably, but there’s a significant difference between the two – a distinction that’s important to understand when purchasing a home. So let’s look at what distinguishes deed from title.
Deed vs. Title: The Difference
A deed is a legal document used to convey the ownership rights to a property. It is a physical document signed by both the buyer and the seller. A deed is like the title to your car. It shows proof of ownership.
Title to a home, however, is the legal way of saying a person has ownership to the property. The title is not a document. It is a concept that says a person has all the rights associated with ownership of a particular property – rights of possession and rights of use.
So when a property is purchased, the buyer receives the deed, a document that proves ownership. The deed is an official document that says the purchaser has title to the real estate.
To get the deed and “take title,” or legally own the property, a lender will perform a title search. This ensures that the seller has the legal right to transfer ownership of the property (and all the legal rights associated with ownership) and that there are no liens against it. If everything is clear, the seller transfers the title to the buyer with a deed at closing, and the buyer becomes the legal possessor of the property.
The closing attorney will ensure the deed is recorded in the county courthouse. The buyer generally gets notification of recording a week or two after closing. If a buyer doesn’t receive notification, a call to the closing attorney is in order to ensure the paperwork has been filed.
What Is Title Insurance?
Even with all of the due diligence a title company does before closing, there are rare instances when title problems can pop up (e.g., missed liens and other legal issues that can be very costly to resolve). To protect against any financial loss, two types of title insurance exist: owner’s title insurance and lender’s title insurance.
Unlike most types of insurance that protect the policyholder from events that may happen in the future, an owner’s title policy protects the buyer from events that have happened in the past that may jeopardize the owner’s financial interest, such as a title defect from fraud or paperwork errors, unpaid liens against the property or claims that some other person is the actual legal owner of or has a legal interest in the property.
When a buyer secures a mortgage on real estate, the buyer pledges the property as collateral for the loan. The lender usually requires the buyer to purchase a lender’s title insurance policy to protect the lender’s investment in case any title problems arise. Lender’s title insurance protects the lender’s interest not the buyer’s interest in the property. The lender has a financial interest in the property until the mortgage is paid in full.
The Proceeds Of The Sale Are Distributed To The Seller
The details of the financial transactions that occur at closing are summarized in a document known as the HUD-1 Settlement Statement.
As a buyer or seller, it’s important to review the HUD-1 document before closing. A buyer or seller should receive the document a minimum of one day but hopefully several days before closing. The HUD-1 shows line by line, each and every expense as well as who is responsible to pay what amount. It’s helpful to review the HUD-1 so there will be no surprises at closing.
Mortgage Loan Documents
Originating and underwriting a loan involves a lot of work on the lender’s behalf. From a buyer’s perspective, it basically boils down to one question: Will the borrower, in the lender’s expert opinion, make good on the promise to repay the many thousands of dollars the mortgagee is lending?
Mortgage loan documents that will be signed at closing include:
- Promissory Note. This is the commitment to repay the mortgage loan. It will include the total amount owed, the loan’s interest rate, the monthly payment amounts and the dates due, the duration (term) of the loan, and acceptable payment methods.
- Mortgage/Deed of Trust. is also known as the security instrument. It is a contract that gives your lender the right to seize the property through foreclosure if the borrower fails to pay your mortgage as agreed. The mortgage goes into depth about the rights and responsibilities of the homeowner and borrower. It outlines the circumstances of how and when a lender can declare the borrower in default.
- Initial Escrow Disclosure. This describes how a lender intends to distribute the money in the escrow account. It includes a detailed breakdown of principal-plus-interest and escrow payments. The escrow disclosure also shows how property taxes, insurance, and possibly PMI and HOA dues are to be paid.
Additional Closing Documents To Read And Sign
The closing process involves reading and signing a slew of additional documents as well. Again, it is important to take as much time as is necessary to read through and understand each item, asking questions if necessary. After all, one thing the closing process doesn’t include is the chance for a do-over.
These documents are commonplace at closing, but a transaction may involve a different mix based on the details of the transaction.
- Signature/Name Affidavit. This is the signature proof that the lender, loan servicer, government entities, and any other relevant parties use to determine the legitimacy of the signatures on all closing documents. It’s particularly useful during mortgage fraud investigations.
- Certificate of Occupancy/Occupancy Statement. When buying a newly constructed home, it’s necessary to sign a certificate of occupancy indicating that the home is ready and safe for occupants. A missing certificate of occupancy can delay the closing process. If buying an existing home, an occupancy statement outlining the home’s purpose, how soon the buyer will move in, and what can happen if the home is used in a manner inconsistent with the stated purpose (for instance, foreclosure).
- First Payment Notification. This restates the amount (with an escrow, principal, and interest breakdown) and date of the first mortgage payment. It also includes information about how to make the payment, including the servicer’s physical and web address.
- Seller/Lender Concessions. This document outlines which closing costs, if any, the seller and lender pay.
- Servicing Disclosure. This identifies the loan’s servicer – either the originating lender or a company that subsequently purchases the mortgage – and confirms the understanding that the loan can be transferred in the future.
- Private Mortgage Insurance Disclosure. If the loan-to-value ratio (LTV) is greater than 80%, the lender will likely require private mortgage insurance (PMI). This disclosure defines PMI and describes the buyer’s relevant rights and responsibilities, how and when it’s paid (typically monthly, into escrow), and when it can be dropped (typically after passing the 80% LTV threshold).
- Flood Hazard Statement. This confirms that the home is or isn’t in a special flood hazard zone. If the home is in a flood zone, it will likely require flood insurance.
- Appraisal Acknowledgement. This confirms that the buyer has a right to receive a copy of the home’s appraisal. It’s often included in the mortgage application as well.
- Equal Credit Opportunity Act Disclosure. This federally mandated form reiterates that a loan can’t be denied based on any protected status, such as race or creed. It’s often included in the mortgage application.
- Truth-in-Lending Disclosure. This is another federally mandated document that spells out the characteristics of your mortgage loan, your monthly payments, and the total amount (including principal and interest) you can expect to pay over the life of your loan.
- Mortgage Fraud Statements. This document defines the various forms of mortgage fraud, lists potential penalties for those found guilty of mortgage fraud, and outlines the steps taken by the U.S. government to investigate and prosecute people suspected of fraud.
- Homeowners Association Covenants and Agreements. Contracts applying to membership in a homeowners association sometimes appear at closing, though they’re often dealt with prior to closing day too.
- Hazard Disclosures. Although the purchase agreement typically includes all necessary hazard disclosures for a home, don’t be surprised to see the same, or additional, ones in a closing packet. Common disclosures cover lead paint (for homes built before 1978), radon, and subterranean wells.
What Buyers Should Bring To A Closing
As a home buyer, The Trembley Group Real Estate Sales Executive and the loan officer should provide plenty of coaching on what to bring to a closing. In most cases, a buyer will need:
- A big check. A cashier’s check (not a personal check) for the total amount due on the HUD-1 Settlement statement. This includes the down payment and all closing costs.
- The checkbook. Be prepared to cover any last minute changes (although hopefully there won’t be any). It may be necessary to cut the seller a check for items that aren’t included in the settlement, such as any heating oil left in the tank or the lawnmower left in the garage.
- Most importantly, full attention. There are a lot of intimidating legal documents to sign at a closing, and it’s important not to glaze over. Do take the time to read everything before signing. Don’t be afraid to ask for clarification if there’s anything that’s not understood.
Pretty intimidating, isn’t it? Remember that your Trembley Group Real Estate Sales Executive will be sitting beside you at the closing table and happy to answer any questions that arise.
At The Trembley Group, we pride ourselves on being the experts at more than just selling real estate. We are local residents, some of us have been here for a lifetime. The rest of us will be here until the end of time. We love living, working, and playing in the diverse backyard of Coastal Carolina, and look forward to helping you live and love your dreams soon too. Please reach out to us by phone or email for personalized service and one-on-one advice.