There’s no doubt that you sign a lot of paperwork when you buy and finance a house. The initial loan disclosures may not mean too much as the fees can change, although it’s still relevant. It’s those final loan documents on signing day that we should read carefully.
- Your FINAL loan application should accurately reflect your income, assets and the subject property
- Your FINAL Closing Disclosure details your loan conditions and fees
- ALWAYS make sure your personal information and the way you take title are correct
It’s so much easier to do these things in advance at home, and following up with questions, than under a tight deadline at loan signing day or at the title office.
Understand it before you sign
Your closing date also known as the “signing date” can be chaotic. There’s many forms that you will see for the first time with items to read and put your signature on. Many of these documents can be wordy and perplexed.
Many don’t get this luxury as closing usually occurs quite rapidly BUT try to request a copy of this paperwork earlier from your Lender or have your Realtor ask the Escrow Company. This will allow you the chance to review the documents at your own pace then you can inquire about anything you don’t grasp with your attorney, closing officer, or lender.
The closing disclosure
You’re expected to sign several forms, notes and instruments on your closing date. One of the most important document will be the closing disclosure (CD). Fortunately your lender must give you this document three business days before your scheduled closing. Look this document over to ensure everything is correct such as:
- Your name spelling
- That loan amount, term, purpose, product, and loan type. Compare it with your most recent loan estimate
- Your interest rate
- Does your loan have a prepayment penalty?
- Does your loan have a balloon payment?
- Is your estimated total monthly payment correct?
- Items in estimated taxes, insurance and assessments that are not in escrow
- That your closing costs match
- That your cash to close matches your most recent loan estimate
Four more final loan documents
Other crucial papers you can also expect at closing will include:
This is your agreement to pay your mortgage. It should indicate the total amount you’re borrowing; the interest rate; the consequences for late payments; and if you have an adjustable rate, an explanation for how your rate can change.
Deed of trust
Repeating info from the promissory note, this document defines your borrower rights. It also gives your lender the right to claim your property via foreclosure if you fail to meet mortgage terms. Look closely at the wording within. For example, the “occupancy” section should state that you will occupy the home as your principal residence.
Also, the “hazardous substances” section states that you’re not permitted to store hazardous materials in your home. And the “acceleration” section declares that your loan can be in default if you fail to make timely mortgage payments or abide by the loan’s conditions. One of those conditions is that if you sell the property, you must repay the loan.
Initial escrow disclosure
This statement shows the exact charges you’ll pay into your escrow (impound) account if you have one. It should break down your principal and interest payments and indicate impound amounts for insurance and taxes.
The next section reveals how your escrow (impound) funds are spent. Look for lines that show your monthly escrow payment, any withdrawals to cover taxes and insurance, and the account’s running balance.
Right of recission
Here’s a form that’s only included when you are refinancing a primary residence. If so, you’re entitled to cancel the loan within three business days. If you’re not refinancing, you don’t have the right to cancel after closing.
But wait; there’s more
The above-listed documents are the most important, but you will get more paperwork. Other items may include:
- Borrower certification form-This document certifies that all info you gave during the application process is accurate and complete
- Errors and omissions/compliance agreement-By signing this form, you authorize your lender to correct mistakes in your loan package. This can include a missing document or omitted signature. You’re required to aid the lender in correcting these issues
- Servicing disclosure statement-This form indicates whether or not your loan servicing may be assigned, sold, or transferred to another party while the loan is outstanding
- State and local government-mandated documents-These meet local and state government requirements. They’re typically used to collect information and protect your rights
You’re typically obligating yourself to a large amount of money when buying a home. And these monthly payments are going to continue for many years. Read the important things, preferably before your closing day. Call your lender if you have any questions about your loan, and sign nothing until you’re satisfied with the answers.