The Home Mortgage Process

Closing the Mortgage and Funding

The Closing: Where Cash and Ownership Change Hands. Now it's time for your attorney to order title searches and other final documents required by the bank and to schedule the closing -- the time and place where cash and ownership of the property changes hands.

The closing can take an hour or two and requires the presence of eight to 10 people .
you, your attorney, the seller, his attorney, the bank, its attorney, and the broker. You'll spend the bulk of the time signing documents and endorsing certified checks. This is where you can expect to shell out the bulk of the cash. Along with the rest of the down payment, you'll have to cover an assortment of fees known collectively as "closing costs." Lenders are required under federal law to give you a "good faith estimate" of all these charges and you should come ready to pay with a certified check. If your bank requires mortgage insurance (which is likely if you aren't putting at least 20% down) you'll also need to pay the first premium.Be sure to inspect the home right before you actually close the deal. Make sure it is in good condition and any property, such as light fixtures or built-in bookcases that you were told you would get with the house are still there. All the appliances should work and it should be broom clean. After the closing is over, have the locks changed and the home is yours. Closing Costs Can Be Up to 6% of Your Loan

So far, we've gone over how to calculate how much house you can afford to buy. We've looked at the basic monthly expenses: mortgage principal and interest, real estate taxes, homeowner's insurance, plus, in many cases, private mortgage insurance.

But before you finish buying the house, there are other typical closing costs. You need to have enough cash to cover these basic costs plus your down payment. Lenders estimate 3 percent to 6 percent of the loan amount in closing costs. On a $100,000 mortgage that would be $3,000 to $6,000.

Lots of Little (and Big) Fees:
Closing costs could include:

Loan application fees and credit report
Title search and insurance fees
Lender's attorney fees
Property appraisal
Inspections
Survey
Recording fees
Transfer taxes
Buyer's attorney
Documentary stamps on new note
Origination fees on mortgage
Condominium application fee
Escrow account balances/prepaids(for taxes, insurance)

Real estate closing practices vary widely from state to state and even county to county. Where you live will determine exactly what you will have to pay. Even if you are not required to escrow money for taxes, you may want to set aside this amount to assure that you will be able to pay those tax bills when they fall due.

Standard Closing Costs

	Fees for a $50,000 Loan	Fees for a $100,000 Loan	Fees for a $200,000 Loan
Loan application fees and credit report	$75 to $300	$75 to $400	$75 to $400
Loan origination fee (1%)	500	1,000	2,000
Points (1 to 3%)	500 to 1,500	1,000 to 3,000	2,000 to 6,000
Title search and insurance fees	450 to 600	450 to 600	450 to 600
Lender's attorney	150 to 400	150 to 400	150 to 400
Appraisal	150 to 400	150 to 400	150 to 400
Homeowner's insurance	300 to 600	500 to 800	700 to 1,000
PMI	350 to 675	750 to 1,500	900 to 1,750
Inspections	175 to 300	175 to 300	175 to 300
Survey	125 to 400	125 to 400	125 to 400
Recording fees	40 to 60	75 to 150	100 to 200
Transfer taxes	75 to 1,125	75 to 1,125	75 to 1,125
Buyer's attorney	400 to 700	1,200 to 1,500	1,500 to 3,000
Escrow deposit for taxes* (depends on closing date)	100 to 800	100 to 2,400	100 to 3,000
Partial month's interest (depends on closing date)	20 to 400	50 to 1,200	100 to 2,400
Subtotals	$3,335 to $8,660	$6,125 to $8,850	$9,550 to $22,975
Plus Down Payment	$5,000	$10,000	$20,000
Totals	$8,335 to $13,660	$16,800 to $18,850	$29,500 to $42,975

Note:* Real estate closing practices vary widely from state to state and county to county. Where you live will determine what you will have to pay. Even if you are not required to escrow money for taxes, you may want to set aside this amount to assure that you will be able to pay these tax bills when they fall due.

Signing Documents and Paying Closing Costs

Make sure the closing is scheduled before your loan commitment, and any rate lock-in, will expire. But be sure there is enough time to finish any loan documentation and properly complete any home inspections or repairs. Be prepared at closing to do basically two things:

Sign Legal Documents These documents fall into two categories: The agreement between you and the lender regarding the terms and conditions of the mortgage and the agreement between you and the seller to transfer ownership of the property. Pay Closing Costs and Escrow Items There are numerous fees associated with obtaining a mortgage and transferring property ownership. You will be expected to pay these fees at closing. Some of these fees can be paid by either you or the seller. Remember: Who pays what closing costs can be part of the negotiations for the sales contract. You also will need to show your homeowner's insurance policy, and any other requirements such as flood insurance, plus proof of payment. Tip Call your local HUD office for a free booklet called "Settlement Costs - a HUD guide," if you have not already received it from your lender.

Your sales contract also should have specified a final walk-through inspection of the house 24 hours before closing. This is to check that the seller has vacated the property and left it in good order. If there are any major problems, you can ask for a delay in the closing, or for money to be set aside by the seller in escrow accounts for the necessary repairs.

Closing Day Involves Many Parties

This is it -- the day you close on your home. This is when all parties sign the papers and formally close the deal. Then, ownership of the home is transferred to you. It's also your last chance to change anything you don't like about the transaction.

Keep in mind that closing procedures vary, even within the same county. Your attorney or the closing agent can verify the procedures for your closing.

Joining you around the table at this closing, or settlement meeting, will usually be the following:

The closing agent, who may work for the lender or title company, or may be an attorney representing you or the lender. In western states, it is often the escrow agent who handles the closing.
The seller
Attorneys for both sides
A title company representative
The seller's real estate agent

The closing agent conducts the settlement meeting and sees that all documents are signed and recorded, and that closing fees and escrow payments are paid and properly distributed.

Documents To Be Signed

HUD-1 Settlement Statement: A detailed list of all costs related to the sale of the home. It is signed by you and the seller, who may be paying some of the closing costs.
Truth-in-Lending Statement: You received the first version of this statement after applying for your mortgage. It outlines the cost of your loan including the annual percentage rate (APR), which includes any points and fees. The interest rate calculations can change by closing date. This is the final Truth-in-Lending statement.
Mortgage note: This is a legal document stating your promise to repay the mortgage. It indicates the amount and terms of the loan, and what the lender can do if you fail to make payments.
Mortgage or Deed of Trust: This document secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.
Certificate of Occupancy: If you are buying a newly constructed house, you need this legal document to be allowed to move in.

Just one more thing: You are handed the keys. Congratulations on now owning your new home.

Prepayments Can Save You Money On Interest Payments

The motivation for prepaying a mortgage is simple -- you save money on interest. And, it can add up to a lot of money.

There are two basic ways of prepaying a mortgage:

You can create a prepayment schedule yourself. Each month send a separate, second check to your lender, indicating that the money is for prepaying the principal. Watch out for, and inquire about, prepayment penalties for paying down principal in the early years of the loan. Don't start prepaying without contacting your mortgage servicer first to find out exactly how the payment should be handled.

Example: Let's say you have a 30-year fixed mortgage of $100,000. The interest rate is 7 percent. The monthly principal and interest payments would be about $665, and you would pay $139,508 in interest over the life of the loan. By adding $25 a month, you could shorten the term by more than three years and save $18,214 in interest. For an extra $100 a month, you would save $50,506 in interest and shorten the term by nearly 10 years.

The mortgage servicer can set up a formal biweekly prepayment plan, but there will be an initial fee, usually a few hundred dollars, plus a processing fee for each payment. You pay half the monthly mortgage amount every two weeks. At the end of the year, the extra money is sent to the lender to pay down the principal.

Example: On a 30-year fixed mortgage of $100,000, instead of 12 monthly payments of $665, or $7,980 a year, you would make 26 biweekly payments of $332.50, or $8,654 annually. The total interest would be reduced $34,130 and the loan term would be shortened to about 24 years.

Tips
Be sure to consider the tax implications of prepayment. Prepaying reduces mortgage interest, which is tax deductible. That may not be beneficial in your tax bracket. It also might be more profitable to put that extra cash in an investment account.

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