By Amy Fontinelle
The closing process basically consists of reviewing and signing your loan documents, but it's not as simple as it sounds. You'll be relying on multiple parties to do their jobs correctly and promptly and the only part of the process you can control is the part that you're responsible for. This section will discuss that process.
The Next Step For Your Loan
At this point, you'll need to review and understand the HUD-1 form. Earlier in your loan application process, you should have received a form called a good faith estimate that outlined the closing costs you'll be responsible for paying.
The HUD-1 is similar to the good faith estimate, except that with its proximity to your closing date, the numbers should theoretically be more accurate. The HUD-1, however, is still considered an estimate. Because of this, one of the line items on this form will be an extra couple hundred dollars that you pay up front in case any of the estimates were low.
In theory, the estimates should be pretty accurate and most of the cushion money should be returned to you after closing, along with a closing statement detailing the exact costs incurred for each item on the HUD-1 form.
The fees you'll see on the good faith estimate, HUD-1 form and closing statement will include items such as the loan origination fee, points (if you're paying any), seller credit (if any) such as a credit toward closing costs or future repairs, title report fee and escrow fee, along with several others. (To learn more, read Mortgage Basics: Costs.)
It's important to review the HUD-1 carefully to make sure it closely matches the good faith estimate you were given, that the amounts are correct and that you aren't being charged any unreasonably high fees or junk fees. If anything is wrong, you'll need to get it remedied ASAP, but keep in mind that the time involved in correcting things might delay your closing and a delayed closing can have penalties.
Sign the Loan Paperwork
The loan documents could very well be 100 pages long and the other people at the signing might pressure you to get through them quickly, but ignore them. These are some of the most important documents you'll ever sign in your life. You need to review them carefully to make sure there are no mistakes or unusual clauses. Make sure your loan officer is either present or readily available by phone to answer any questions you may have. After you sign the loan documents, the escrow company will execute the closing instructions and your loan funds will be distributed to the seller. At this point, the transaction is almost complete.
Then, the property gets recorded in your name. Once the funds have exchanged hands, the city or county will be notified of the transaction and record you as the new owner of the property. At this point, you'll finally get the keys. The first thing you should do is change the locks - who knows how many copies of that key are floating around?
Say Goodbye to Your Rental
When should you give notice at the place you're renting? To be safe, wait until you have the keys to your new home. Then consider how long it will it take you to move. Are there any repairs or remodels that you need or want to do before moving in? It will be easier to do them in an empty house, if you can afford the extra month's rent. (Will this agreement help you keep a home you love, or squash your homeowner dreams? Get Your Foot In The Door With Rent-To-Own.)
It's not a good idea to give notice before the purchase transaction is complete, because there are so many things that can go wrong during the process and cause the sale to fail. You don't want to end up having to find a new place to live on just a few days' notice. It's impossible to buy a house that quickly, so you'll have to rent a new place or even stay in a hotel. And because rent is due a month in advance and mortgage payments are made after the month you're paying for (i.e., your December 1 mortgage payment covers the month of November), you can probably afford to go that month between giving notice and moving in without having to make two housing payments in the same month (even though you will technically be paying double for housing that month).
Fix any significant maintenance problems, like a leaky roof, right away. If any problems were revealed during the home inspection that the seller didn't fix, you should repair them immediately. Now that the house is yours, these problems are your problems and you don't want them to get any worse.
Keep Cash on Hand
You'll probably have a lot less cash after closing because of what you've forked over for the down payment and closing costs. On top of that, you probably have a higher monthly housing payment than you did when you were renting. However, it's more important than ever to keep what cash you have left available and rebuild your cash savings. One day you'll need a new roof, air conditioner or furnace, and you'll have to pay for other expensive repairs.
It's also important to keep cash on hand in case you lose a job or fall on some other hardship so that you can keep paying your mortgage. Not losing your house and keeping it in good condition should be priorities if you want to protect your investment. Unlike a rental unit, your home is more than just a place to live - it can be a significant source of future wealth.
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