Mortgage loan closing is the last phase of the homebuying process. 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.
Title Search
A title search is a critical part of the mortgage closing process because it protects the buyer from potentially purchasing a property that has legal problems. The mortgage lender requires a title search to be conducted before a new deed can be issued.
A title company conducts an investigation of a property’s history, in preparation of the property changing ownership from the seller to the buyer. This is a critical part of the mortgage closing process.
The title search involves a review of specific legal records for any to determine whether there are any potential discrepancies or issues with the property. The title search can be as extensive and thorough as the homebuyer wants, and fortunately, there are many different title companies available to satisfy buyer needs.
Among other things, during the title search, the title company will typically look at whether problems exist with any of the following:
- Deed
- Open/Unpaid mortgages
- Liens & Judgments
- Bankruptcy
- Tax Status
Title Insurance
Title insurance can be purchased by the homebuyer at mortgage closing time. If you think you don’t need title insurance, imagine that you’re comfortably settled into your new home and suddenly you receive a legal notice that someone else claims ownership of your property!
Title insurance coverage can protect a homebuyer against future claims against the property. As part of the mortgage closing process, buyers can select from several options for title insurance coverage. The top three choices for title insurance are: Owner’s Insurance, Lender’s Insurance, and Extended Owner’s Insurance.
Basic Owner’s Title Policy Coverage:
- Clear title to the property
- Incorrect signatures on documents
- Forgery and/or Fraud
- Defective recordation
- Restrictive covenants
- Encumbrances or Judgments
Basic Lender’s Title Policy Coverage:
- Mechanic’s liens and Unrecorded liens
- Unrecorded easements and Access rights
- Defects and other unrecorded documents
Extended Owner’s Coverage:
- Building permit violations from previous owners
- Subdivision maps
- Covenant violations from previous owners
- Living trusts
- Structural damage from mineral extractions
- Variety of encroachments and forgeries after title insurance is issued
The title search and purchase of title insurance are key components of the mortgage closing process and can help a homebuyer avoid costly problems in the future.