First I'd like to start off thanking all of you who are reading this piece of the series. It's a little bit off topic from saving money for your down payment but believe me in the long run things you do not know about your loan closing can cost you money. This will be the final article in the home loan application and buying process but if you'd like more information please do let us know and we'll be happy to provide additional information. You have picked the perfect time to research the home loan application and closing process, while saving up your down payment. As a refresher, you may wish to check out the first three articles in this series: the math behind your 1st house, your first home closing costs, and your first home application process.
What Are Home Loan Closing Documents?
The documents that you will be faced at with closing range from some pretty basic ones (such as the HUD-1 Settlement Statement) to complex ones (like your loan documents). These documents should be reviewed carefully before you sign any of them to make sure they are in accordance with your understanding of all of the costs and fees associated with your mortgage as well as what your monthly mortgage payment is going to be.
The HUD-1 form discloses all of the fees associated with your mortgage. This will include such things as fees for inspections, appraisals, credit reports and other fees that you may have paid up front to your mortgage lender or broker. In addition, the HUD-1 will also disclose on it any amounts that need to be paid up front (i.e. amounts you owe at closing). This form is normally sent to you a few days before closing so you know exactly how much cash you need to have on hand on the date of closing. In addition to your costs and expenses, you will also find that all of the costs and expenses as well as the balance that will be paid directly to or on behalf of the seller of the home will be included.
Carefully review the HUD-1 form prior to closing and if you have any questions or concerns you should immediately contact your lender or broker for an explanation. Make sure this explanation is acceptable and don't be taken in by last minute changes that are different than what was originally represented.
Some things that are normally changed on this form that cannot be controlled by the lender (or by you) are the amount of escrows to be paid for insurance or taxes and/or the amount of interest due to your lender. These costs are typically based on the closing date and therefore are always subject to change even if your closing date moves only one (1) day.
The Loan Documents and Deed of Trust
Loan documents are bulky and may have a lot of language in them you will not entirely understand. Do not feel like you have to rush through the signing process, carefully read and make sure that you're comfortable with the language. While most of the language is "boiler-plate" there is some language that is not and you must understand what is written in this document to fully understand the terms of your loan. The loan document should lay out in very specific terms (a) the date your mortgage is due each month, (b) the amount of your monthly mortgage payments, (c) the address of the mortgage holder, (d) any grace period that is granted by the mortgage company that is not subject to additional fees and (e) late fees.
Remember you are accepting the details of your loan and approving the lender to place a lien on the property for the full amount of your mortgage once you sign these papers!
The Truth in Lending Statement
You should have already received a truth in lending statement when you initially applied for your loan. These must be supplied by the lender not more than three (3) days after your application. However, you will be presented with another one at the time of your loan closing. Known in the industry as "Regulation Z" truth in lending disclosures lay out all of the terms of your loan. You should carefully review the truth in lending statement as it will help you better understand the process. Please be aware that the APR (annual percentage rate) is NOT the same as your interest rate when you are reading it and if you need additional information on how that is calculated you can easily find it (or we can write another article about it). Use this document to carefully review all of the terms of your loan and make sure they agree with the loan documents that we described above.
The closing process can be very confusing. You are on the right path to removing the confusion by educating yourself while saving your down payment. By doing your homework today, the home buying process will be very smooth once you have your down payment saved.
This article is written by guest author Doreen Martel exclusively for Save For House.