Home closing: What you need to read, what you can skim
In this article:
At your home closing, you’ll receive a pile of documents. Fortunately, much of it is “boilerplate” paperwork you can skim.
- You will sign a final mortgage application. Make sure it’s accurate
- Compare your Closing Disclosure and the most recent Loan Estimate to make sure the costs match
- Your note provides the loan amount and terms. Make sure it’s what you agreed to
It’s smart to get your final documents a few days before closing and review them at home without pressure.Verify your new rate (Nov 15th, 2019)
When it comes to home closing paperwork, there are two schools of thought. The absolutists say read everything. Bore through that home contract. Diagram every sentence. If you’re buying a new home, get a magnifying glass and study that new home construction contract.
And then there’s former HUD Secretary Alphonso Jackson.
“I’m an attorney and I’ve had eight houses and I didn’t read all that mess,” Jackson told The Washington Times. “If I didn’t read it — and I doubt anyone around this table read it — then we can’t hold people responsible for not reading every line when they were closing their loan.”
Another attorney and former government official, Mel Martinez, argued for less paperwork. He told The Washington Post that, “You know if I’m a lawyer and the secretary of HUD and I’m not reading this junk, you know there’s work to be done fixing the system.”
The important point is that there is much that should be read in home closing materials. Whether you should read every word is arguable. What’s clear is that there are some things you very much should read.
Home closing paperwork
Part of the problem with home closing paperwork is that there is so much of it. A study by VirPack found that almost 60 percent of all loan files contained between 501 to 2,000 pages of material. Closing paperwork is less extensive, but there’s still a lot of it.
There is some paperwork which you need to read.
The sale agreement. Not really part of the home closing package, but important to it anyway. It sets out transaction terms and conditions. Everything which follows relates to the sale agreement. Review with a broker or attorney before signing.
The mortgage application. Known as the Uniform Residential Loan Application. Also known as Fannie Mae Form 1003 or Freddie Mac Form 65. At closing, you’ll sign a final version of your loan application. Make sure that this document reflects your income and assets, and the property use (primary residence, rental or vacation home).
The Loan Estimate (LE). A form created by the federal government to explain loan offers. It’s in big type and easy to read. You’ll get one a few days after applying for a mortgage, and after any “material” change in your loan application. Read every word and sign if you understand and are comfortable with the details.
The Closing Disclosure (CD). Another federal form, which you should read from cover to cover. It should largely match the last Loan Estimate that you received. If you see any differences, speak with the loan officer and closing agent. For many fees, if the CD charge exceeds the LE charge, the lender has to eat the difference.
The promissory note. The promissory note describes the loan you’re committing to repay. This information includes the starting loan balance, the mortgage interest rate, the total you’ll pay (including interest), the payment due date, the loan term in years or months, if and when the payment can change, and the payment address.
The fine print
Real estate documents are filled with boilerplate language long accepted by the courts. Generally, there is one key financing point. You want a mortgage, and the lender wants to originate a mortgage. The lender wants to be entirely certain that you meet all requirements by a loan program and have the ability to repay.
That said, there are several important issues to consider.
First, if you are an investor, make certain the paperwork says the loan is for investment purposes. Lenders view rental properties as riskier than primary residential properties. If the loan mistakenly funds as a primary residence mortgage, you could be in trouble for perpetrating a fraud.
Second, make sure that the loan program, rate and costs are what you expected. If you have an adjustable rate mortgage, there should be a rider explaining how and when your interest rate can change. If you have a government-backed loan, there will be specific disclosures for that program.
Third, look very carefully at how the property will be titled. If you are married and buying jointly the deed should reflect your status. The rules give special benefits and protections to married couples. You want the deed to be correct.
Earlier is better
Trying to sign home closing paperwork when you have not had the chance to review it is stressful and potentially risky. It’s hard to go through everything you should with a couple of real estate agents and possibly your seller and loan officer breathing down your neck.
Request that you get a copy of the closing documents in advance, at least a day. So you can review everything at your leisure and in your own home. Write down any questions you have and then contact your loan agent for clarification.
Alternatively, make sure that your loan officer or mortgage broker will be with you at your closing or available by phone to answer questions that come up.
If you don’t understand your paperwork, don’t sign it. Make everyone involved resolve your issues and answer your questions before you commit to an important and expensive purchase.Verify your new rate (Nov 15th, 2019)