Because
a new home is probably the largest and most important purchase
you'll every make, our Mortgage Information Desk will provide
you with the information you need to make wise choices.
Mortgage Information Desk: Loan Closing
Process
After the borrower has been approved, the legal documents
required for the loan closing are prepared by the lender
and forwarded to the closing agent. Before funds are released
to the closing agent, the borrower must sign the loan documents
and meet any conditions required by the lender. The lender
will submit instructions to the closing agent that outline
the procedure and conditions for loan closing. Closing agents
can be title companies, escrow companies and lawyers. Each
lender may have its unique instructions (lenders instructions)
for loan closing and each state may differ on some of the
legal requirements. There are several major documents that
are included for all closings.
Required Documents For Loan Closing
Loan Funding
Required Documents For Loan Closing
- Mortgage Note - The mortgage note outlines
the amount of the debt, the terms and payments, the interest
rate, margins and caps for ARMs, the name of the lender
(beneficiary), the name of the borrower (mortgagor), and
any other material item required by the lender. The borrower(s)
must sign the note.
- Security Instrument/Deed of Trust/Mortgage - A
deed of trust is an instrument given by the borrower to
a third party (trustee) vesting title to the property in
the trustee as security for the borrower's repayment of
the mortgage loan. A mortgage is the conveyance of interest
in real estate used as security for repayment of a note.
Depending upon the state and customs within that state,
one of these instruments is generally used as security for
the mortgage note. In the event a borrower defaults on the
note, the security instrument outlines the legal procedure
enabling the lender to take ownership of the property. Usually
the security instrument is recorded as a public document.
- Deed of Trust Riders - When the mortgage
loan is an Adjustable Rate Mortgage, lenders require a rider
that is recorded along with the security instrument.
- Truth in Lending Statement/Regulation Z - The
lender will provide an updated Truth and Lending Statement
to reflect the actual costs of the loan and indicate the
annual percentage rate.
- Closing Statement/HUD 1 - After the loan
has closed, the closing agent will provide a closing statement
document that outlines the final costs of the loan. Borrowers
can expect to receive this document within 3-5 days after
loan closing.
Loan Funding
After the closing agent has received the loan documents,
the down payment if required, and other incidental closing
items from the lender, they will make arrangements for the
buyer (borrower) and the seller (on a sales transaction)
to sign the necessary documentation to consummate the transaction.
After the documents have been signed, the closing agent
will request the loan funds from the lender. Lenders review
the package before the funds are released to the closing
agent. In some states the lender will release funds if the
closing agent guarantees that the loan package meets all
of the lender's requirements.
One additional document that is required by most lenders
prior to closing is the hazard insurance policy. At a minimum,
the policy must have fire and extended coverage with a special
form endorsement that covers the loan amount. Borrowers
can increase coverage for other items, such as earthquake
damage, theft, flood, etc.
After loan funding, the closing agent will make disbursements
based upon the instructions from the lender, seller and
buyer. For example, if there is an existing loan to be paid
in full from the loan proceeds, the closing agent is responsible
for making that payment. The closing agent will also make
arrangements with a title company or county recorder to
record any public documents, such as grant deeds or deeds
of trust.
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