The mortgage loan closing (or settlement) is the meeting at which you take official ownership of the house. Youll be required to sign many papers and pay your closing costs at the meeting in order to take possession of your new home. Technically, two separate closings occur at this time the closing of your loan and the closing of the sale. Then, at the end of the meeting, you get the keys to your new home! Although the closing process varies from state to state, and even within the same county or city, certain activities are standard. It is to your benefit to understand the many activities that need to occur before, during and after the closing meeting and their costs.

Closing activities checklist

In the weeks before closing, youll need to make some important decisions. Your lender, real estate sales professional, and closing agent will be handling many pre-closing activities. But you still need to be aware of them and know who typically arranges and pays for each activity. We have provided a checklist that will help you prepare for your loan closing.

Closing costs checklist

No later than three business days after your loan application was received, your lender should have delivered or mailed to you a good faith estimate of the total charges due at closing and a copy of the government publication Settlement Costs A HUD Guide. Then, one business day before the closing meeting, your closing agent must allow you to review a copy of your two-page settlement form -- called the HUD-1 Settlement Statement. The good-faith-estimate is based on the lenders typical loan origination costs for the area where your home is located. So the estimate usually changes between application and closing. That is why youll want to review your settlement form before the closing meeting. It will show you the actual amount of money youll need to bring to closing.

Remember that youll need to pay your closing costs in the form of a certified or cashiers check. Personal checks usually arent accepted. Closing costs vary widely depending on price, location, and other factors. Overall, you can expect your closing costs to amount to between 3 percent and 6 percent of the sales price. We have provided a checklist that will help you understand your closing costs.

What happens at closing

The closing meeting is where ownership of the home is officially transferred from the seller to you. Your closing agent coordinates all of the document signing and the collection and disbursement of funds. Your main role at the closing is to review and sign the numerous documents related to the mortgage loan and to pay the closing costs. The closing is a formal meeting typically attended by the buyer(s) and the seller(s) (and their attorneys if they have them), both real estate sales professionals, a representative of the lender and, of course, the closing agent. The meeting takes about one hour and usually is held at the closing agents office. Or, you may live in an area where there is no formal closing meeting. Instead, an escrow agent processes all the paperwork, arranges for all documents to be signed and collects and disburses the required funds. The steps below explain what happens during and after the closing meeting

• First, the closing agent reviews the settlement sheet with you and the seller and answers any questions. Both you and the seller sign the settlement sheet.
• The closing agent then asks you to sign the other loan documents, such as the mortgage note and Truth-in-Lending statement.
• Evidence of required insurance and inspections is also presented (if it wasnt previously given to the lender).
• If everyone agrees that the papers are in order, you (and the seller) submit a certified or cashiers check to cover the closing costs and the balance of funds due (if applicable). And, the check from the lender covering the mortgage amount is submitted to the closing agent.
• If the lender will be paying your annual property taxes and homeowners insurance for you, a new escrow account (or reserve) is established at this point.
• You receive the keys to your new home.
• After the meeting, the closing agent officially records the mortgage and deed at your local government clerks office or registry of deeds. This legal transfer of the property may take a few days after closing. The closing agent usually will not disburse the funds to everyone who is owed money from the sale (including the seller, real estate professionals, and the lender) until the transaction has been recorded.
• It is at the point of deed recordation that you become the official owner of the home.

Closing documents

You will receive a number of important documents at the closing meeting. Review this list of documents before you go to the closing table, so that you will be prepared for the documents that you will receive.

HUD-1 Settlement Sheet -- The settlement sheet itemizes the services provided and lists the charges to the buyer and the seller. It is filled out by your closing agent and must be signed by both you and the seller. You should have been allowed to review this form on the business day before your closing meeting so that you will be able to know your closing costs in advance.

Truth-in-Lending (TIL) Statement -- Within three business days of applying for a loan to purchase a home, your lender should have given you this document, which outlines the costs of your loan. You receive it at that time so that you may compare the loan costs with those of other lenders. The TIL statement also discloses the annual percentage rate (APR). The APR is the cost of your mortgage as a yearly rate. This rate may be higher than the interest rate stated in your mortgage because the APR includes any points, and certain other costs of credit. The TIL statement also discloses the other terms of the loan, including the finance charge, the amount financed, the payment amount, and the total payments required. It is possible that the APR calculated at your loan application will change at closing. That is why your lender is required to give you the final version of your TIL statement at or prior to the closing meeting.

The note -- The mortgage (or promissory) note is a legal IOU. The note represents your promise to pay the lender according to the agreed terms of the loan, including the dates on which your mortgage payments must be made and the location to which they must be sent. The note also details the penalties that will be assessed if you fail to make your monthly mortgage payments. And, it warns you that the lender can call the loan (require full repayment before the end of the loan term) if you violate the terms of your note or mortgage.

The mortgage -- The mortgage is the legal document that secures the note and gives the lender a legal claim against your house if you default on the notes terms. In effect, you have possession of the property, but the lender has an ownership interest (called an encumbrance) until the loan has been fully repaid. The mortgage restates the basic information found in the note. It also states your responsibilities to pay principal and interest, taxes, and insurance on time; to maintain hazard insurance on the property; and to adequately maintain the property and not allow it to deteriorate. If you consistently fail to meet these requirements, the lender can demand full payment of the loan balance or foreclose on the property, sell it, and use the proceeds to pay off the outstanding loan and the foreclosure costs. In some states, a deed of trust is used instead of a mortgage. By signing a deed of trust, you receive title to the property but convey title to a neutral third party (called a trustee) until the loan balance is paid.

Affidavits -- You may be asked to sign numerous affidavits. For example, you may be required to sign an affidavit of occupancy, which states that you will use the property as a principal residence. Or you and the seller may need to sign an affidavit that states that all of the improvements to the property that were required in the sales contract were completed before closing. Ask your lender whether youll be required to sign any affidavits at closing.

The deed -- Only the seller signs the deed at closing. It is the document that transfers ownership from the seller to you. Your name and the names of any other buyers appear on the deed. Youll receive a copy of the deed at the closing. The closing agent then records the deed (with you listed as the new property owner). The deed will be sent to you after it is recorded.