Mortgage loan closing is the last phase of the homebuying experience. There are several important aspects to the mortgage closing process ― including closing costs, key documents and paperwork, title searches, and escrow accounts. Whether you are a first-time home buyer, a seller, or an experienced real-estate investor (in residential or commercial properties), understanding the mortgage loan closing process will help you take that final step towards ownership.
During a formal mortgage closing, the buyer and seller (with their respective real estate agents and attorneys) are present at a pre-determined location, date and time. These days, however, it’s not necessary to literally sit at the table across from the “contra-party” on closing day. The documents required to complete the mortgage closing can be delivered by Express Mail or e-mail ― to be signed, scanned or copied, and returned to the other party’s agent for presentation.
Several steps need to occur before the mortgage closing process can take place. First, the buyer must be approved for a mortgage loan. The buyer will undergo a credit check, as well as income and debt verification. The mortgage lender (typically a bank) must agree to hold the mortgage (or “note”) under terms that are suitable to both parties. The buyer should be comfortable with their loan’s interest rate and term length, and the lending institution must be confident that the buyer will be able to make the monthly mortgage payments. For help with loan application and loan commitment, buyers may hire a reputable mortgage broker or conduct an online search of current and local mortgage rates.
Also taking place before mortgage closing is an appraisal of the property’s value, which is an equally important step in the loan qualification process. Lenders generally stipulate that the home’s value cannot be less than the amount of the loan. This protects the lender in case the homeowner defaults on the mortgage ― it also provides a measure (though not a guarantee) of protection that the buyer is not overpaying for the property, based on current market conditions.
Typically, the buyer’s agent will provide a list of qualified, independent real estate appraisers. The appraiser’s job is to thoroughly inspect the property and present a checklist of items that need to be repaired, to make the buyer aware of deficiencies with the property. The appraisal also typically includes a comparison of similar properties in the area to use as a benchmark for the home’s value. Before mortgage closing, when buyers make an offer on a home, it is usually on the condition that the property appraisal will be successful.
As a major part of the mortgage closing process, the buyer must obtain homeowner’s insurance. Most homeowner’s insurance policies cover the house, including adjoining structures and the contents of the home. It is very important for homebuyers to review and understand the terms, conditions, and exclusions (what the policy will not cover) of their homeowner’s insurance before purchasing. Because homeowner’s insurance policies can vary by issuer, state, and specific area (e.g., regions prone to floods, tornadoes, earthquakes, or other natural disasters), this step in the mortgage closing process should be researched with great care.
On loan closing day, the buyer and the lending institution must present their payments, and all contracts and documents are executed by the buyer and seller. The settlement attorney will then proceed to file all the necessary papers with the court to transfer ownership, and the mortgage closing process is complete.