Fannie Mae Foundation: How to Buy a Home

Closing documents

There are three basic steps to the closing: (1) preparing and assembling the closing documents, (2) signing the documents at the closing, and (3) recording documents after the closing.

The documents listed on this page are some of the more important ones, but there may be many others. For example, there are special papers you must sign if you get an adjustable-rate mortgage. There may be papers to sign regarding building restrictions. There may be a Certificate of Occupancy
stating that the building is habitable (this is often used with new homes). There may be documents to sign regarding how the checks written at the closing are to be dispersed. If certain funds are held in escrow, such as estimated taxes, insurance premiums, and other charges to be paid from the escrow account when they become due, papers must be signed. In some areas, proof of flood insurance must be provided. When the property is a condominium, homeowners’ association agreements must be signed. If a person is divorced, certain papers regarding the divorce agreement may have to be signed. If private mortgage insurance is required, there will be documents outlining
this agreement. These and other documents may appear at the closing.

It is important to point out to students that their mortgage or deed of trust
and deed (or title to the house) will be placed on file at a local courthouse. This is usually handled by the closing agent.

Unit 3 : Lesson 2: How to shop for a mortgage loan

Looking further

Closing documents

Here are only a few of the many documents you may see at your closing. It is helpful to know the names of some of the most common documents so you won’t feel overwhelmed when all those “experts” gather around the table at your closing.

The Mortgage Note

The mortgage note, also called a promissory note, is your promise to pay the lender according to the terms you have agreed upon. It gives the date payments must be made and where to send them. It also describes the penalties if you do not make your monthly payments. The mortgage itself is held by the lender.

The Deed

The deed is the document that transfers ownership from the seller to you. If you have co-borrowers you need to decide ahead of time whose names will appear on the deed.

Mortgage or Deed of Trust

This is the document by which you give your lender a “security interest” (a lien on) in your house to protect the lender if you don’t repay your loan. The original is recorded in your county or city so that other financial institutions or other creditors know you don’t own your home free and clear.

Housing and Urban Development (HUD) Uniform Settlement Statement

This form, required by the federal government, is filled out by the closing agent. It lists everything the buyer and the seller have paid for at the closing and at any other time in connection with the sale of the house.

The Title

A title is the legal document that proves who owns the property.

Title Insurance

Before you buy a house, lenders require that a title search be made in local government files to make sure the seller has a “clear title” to the property. They want to be certain that claims against the property have not been filed. The lender also requires that you take out title insurance to protect them in case a problem with the property is found after you have bought it. You can get title insurance that protects only the lender, or you can get insurance that protects both you and the lender.

Truth-in-Lending Disclosure

This document gives the actual cost of financing your loan, including the APR and any other charges, and makes sure the lender has disclosed all financial information about the loan to you.

Proof of Homeowner’s Insurance

Your lender will also require that you purchase homeowner’s insurance. At a minimum, you must get hazard insurance that protects the property in case the house is damaged or destroyed by fire or storm. Most people purchase a package of insurance that covers them in case they are sued by someone who is injured on their property. The package also includes coverage against fire, theft, and certain weather-related hazards. Lenders often ask you to pay the first year’s insurance fees at or before closing. In this case they will ask you to bring proof you have paid. Or they may add the insurance cost onto your monthly payments.

Recording the Documents

After all the papers have been signed and the fees have been paid, the mortgage and the deed must be officially recorded, usually at your town or city clerk’s office. The lender arranges for this to be taken care of. This legal transfer takes a few days.

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