Closing Documents: What Buyers And Sellers Need To Sign

While closing day is exciting, it also includes a dizzying array of paperwork. You might walk out of the office afterward not quite realizing what you just signed. Luckily, you don’t have to go into the process uninformed. As a home buyer or seller, knowing what you’re agreeing to is crucial for your financial well-being.

Read on to get a better understanding of each document you’ll be putting your autograph on when closing day comes.

What Are Closing Documents?

Closing documents are the paperwork that the home buyer, seller, or both must sign for a home sale to take place. Generally speaking, the documents inform the home buyer of the final closing costs, and the seller receives verification of the sale.

Buyers and sellers don’t have to be present on the same day or in the same place during closing. As a buyer, it may feel like you’re fighting through a pile of paperwork on closing day, but each document contains information and conditions that determine your mortgage and closing costs.

Therefore, acquiring a basic understanding of these documents will help closing day feel less like an onslaught and more like an organized, logical process where you gain ownership of your dream home.

Closing Documents For Buyers

There are many closing documents for buyers. They’ll need to sign these documents before they can get the keys to their new home. Closing day will probably feel like a blur, and it might not be easy to distinguish one item from another. The following is a list of forms you will sign.

Closing Disclosure

A Closing Disclosure is a document that defines the parameters and costs of the mortgage, including the loan amount, interest rate, monthly mortgage estimate and closing costs.

Real estate law entails that lenders give home buyers the Closing Disclosure at least 3 business days before closing day. This period gives buyers a chance to review and understand the cost of the mortgage.

Whereas the Loan Estimate approximates the costs for home buyers, the Closing Disclosure provides accurate numbers. In addition, the Closing Disclosure allows buyers to check for errors, from the spelling of their name to the loan term. Once the buyer notifies the lender of the necessary changes, the lender will send updated Closing Disclosures and reset the 3-business-day window.

Loan Estimate

Like the Closing Disclosure, a Loan Estimate comes from your lender. It outlines your monthly mortgage payment, closing cost details, how your interest rate affects your expenses, property appraisal and homeowner’s insurance.

Your lender will send you a Loan Estimate 3 days after receiving your mortgage application. If there are significant changes to your loan estimate in the weeks or months before closing, such as an interest rate hike, your lender will send you an updated Loan Estimate.

Proof Of Homeowners Insurance

No law forces home buyers to purchase home insurance, but lenders usually require it to reduce their financial risk. Home insurance policies vary depending on the homeowner’s needs and the insurance company. However, the policy must meet the lender’s minimum requirements for closing to proceed.

To provide proof of insurance to your lender, ask your home insurance company for a declarations page or the complete policy document. If you purchased your policy a short while ago, the insurance company might send you a homeowner’s insurance binder as makeshift proof until they finalize your declarations page.

Loan Application

Your lender should give you a copy of your loan application to review at closing. Home buyers should peruse the application one last time to ensure everything is accurate. Your lender can address any mistakes you find and ensure that all loan documentation is consistent.

Mortgage Note

A mortgage note, also known as a promissory note, is a contract stating that the home buyer will repay the lender the amount borrowed to purchase the home. The mortgage note specifies the monthly payment and how long the payments will last.

At closing, the mortgage note will show the amount you’re borrowing, the interest rate, any prepayment penalties, and the consequences for late payment or default. It’s a legally binding contract that you should review carefully.

Only sign a mortgage note (and your other documents at closing) when the information on it is wholly correct and your lender satisfactorily answers your questions.

Escrow Account Statements And Documentation

Buyers must review and sign the initial escrow statement as part of the closing. The escrow statement describes how much of your monthly payment will cover your property taxes and homeowners and mortgage insurance premiums.

Because property taxes can change year-to-year, your escrow account statement might not reflect what you need to pay. Should you overpay, extra money in the account will be sent to you at the end of the year if the overage is $50 or more.

If your taxes or property value increase significantly, you may end up owing at the year’s end because the amount stipulated by the escrow account statement did not pay your taxes in full.

Deed

A deed transfers ownership of the home from the seller to the home buyer. The seller, or grantor, must get the deed notarized for it to be valid for closing.

Before a home buyer receives the deed, their attorney or title company will conduct a title search to confirm that the property has no liens against it. The county where the property resides will receive a record of the deed transfer.

The deed and the title to the home are closely related but distinct. The title designates who owns the property, while the deed is a brief document that transfers the title from one party to another.

Title

Title defines ownership rights over a home. Unlike the deed, it’s not a set of documents but a concept that instates a property owner with rights to do with the property what they wish.

As a home buyer, holding title over your new home is essential. Thus, the deed is an indispensable document granting you ownership rights over the home.

Closing Documents For Sellers

Home buyers aren’t the only ones who deal with a mountain of paperwork on closing day. However, there are different closing documents for sellers.

Bill Of Sale

A bill of sale indicates that the former owner of the form has sold the home to the buyer. Along with the deed, it’s another document that proves ownership of the property has transferred from one person to another.

Certificate Of Title 

A certificate of title declares who the owner of the property is. It comes from the state or municipality in which the property is located.

Title companies and real estate attorneys use the certificate of title to verify that the property is free and clear of liens. Otherwise, the buyer cannot purchase the property.

The Deed

The seller must also sign the deed to transfer title to the home buyer. The deed includes the description of the property as well as identifies the seller and buyer. This document makes the agreement official after both parties sign.

Mortgage Loan Payoff Agreement

A mortgage loan payoff agreement guarantees that the seller will pay off the outstanding balance on their mortgage. This document functions so that the amount still owed by the seller to their lender does not interfere with the home sale. This document is unnecessary if the seller has already paid off their mortgage.

Bill Of Sale For Personal Property

Sellers including personal items in the sale must fill out and sign a bill of sale for that personal property. Not all home sales involve the transfer of personal property. As a result, standard closing documents do not account for this. A separate bill of sale allows the seller and homebuyer to transact the sale of personal items during closing.

How Can I Get A Copy Of My Closing Documents?

The closing agent should have copies ready for the buyers and sellers during the closing appointment. Whether you’re a home buyer or seller, ask for copies if you don’t receive them initially.

If you’ve already closed, it’s not too late to get a copy of your closing documents. Your real estate agent should be able to provide it upon request.

The Bottom Line

Closing a home sale is a complex process that requires thorough documentation. As a buyer, this may seem exhausting, but understanding the specifics of your loan will help you become a responsible homeowner and benefit your overall financial health.