Signing your final loan documents: what to look for

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You sign a lot of paperwork when you buy and finance a house. But it’s those final loan documents that obligate you to the purchase and mortgage, so go over them carefully.

1. Your final loan application should accurately reflect your income, assets and the subject property
2. Your final Closing Disclosure details your loan conditions and fees
3. Make sure your personal information and the way you take title are correct

It’s much easier to do these things in advance at home, and following up with questions, than under a tight deadline at a title office.

Read and realize before you sign

Your closing date — aka “signing date” — can be hectic. That’s because this is the day you have a lot of forms to read and put your signature on. Many of these documents are wordy and confusing. But it’s important to understand them before signing.

Why do this in a rush and under pressure? Instead, you can request a copy of this paperwork earlier. This allows you the chance to review these documents at your own pace. And you can inquire about anything you don’t grasp with your attorney or closing officer.

Learn about these priority papers well before your closing date. And know what to look for in these documents, including the fine print. This can avoid serious regrets later.

The closing disclosure

You’re expected to sign several forms, notes and instruments on your closing date. And one of the most important is the closing disclosure (CD). Therefore, your lender must give you this document three business days before your scheduled closing. The Consumer Financial Protection Bureau recommends checking:

• Your name spelling
• That loan amount, term, purpose, product, and loan type match your most recent loan estimate
• Your interest rate
• Does your loan have a prepayment penalty?
• Does your loan have a balloon payment?
• That your estimated total monthly payment matches your most recent loan estimate
• If you have items in estimated taxes, insurance and assessments that are not in escrow
• That your closing costs match your most recent loan estimate
• 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 include the:

Promissory note

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 not the only paperwork you’ll get. Other, less-critical items included in your review-and-sign stack can 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

Why it pays to parse the fine print

All of these documents need to be reviewed very carefully.

“You’re typically obligating yourself to a large amount of money. And those monthly payments are going to continue for many years,” says Mark Lee Levine, professor at the Burns School of Real Estate and Construction Management, University of Denver. “You can’t afford to make a mistake.”

Contesting a legal document you signed is hard work. Just ask J. Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College.

“Say you get into court over an argument about one of the documents. The courts almost always side with the meaning of the mortgage as written. The lender’s attorneys normally write this language. So the borrower almost always lose the argument,” Baker says.

Baker has seen many cases of borrower regret.

“Many judges have absolutely no sympathy for those who say they didn’t understand or didn’t read what they signed,” he says.

Proactive steps you can take

To prevent borrower’s remorse, try these tips:

Get your closing documents in advance. Ask your closing officer for a complete set of these documents. Do so at the same time you receive your closing disclosure, which is at least three days prior to closing.

Have a lawyer read these documents. “You’d be well advised to have an attorney represent you,” Levine says. “This is usually the largest financial commitment most people make in their lives.”

Check the numbers carefully. “Be sure the amount borrowed is the same amount that was on the loan estimate and closing disclosure forms. And make sure the promissory note is for that amount only,” says Baker.

Check the amount of money you need to bring to closing. “This is on page 3 of the closing disclosure in the calculating cash to close tab,” Baker notes.

The main takeaway here is to 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.