If you thought searching for a home was stressful, just wait until you get to the closing. Just when you thought everything was going perfectly fine, you could be slapped with an unpleasant surprise if you aren’t prepared.
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Luckily, there are five simple ways you can properly prepare yourself for the final step in the mortgage process.
Choose the Closing Date Wisely
The title company and/or lender will likely throw a closing date at you, but you don’t have to take it if it isn’t convenient for you. Whether you are buying a home or
refinancing a current loan, you want the date that you close on the loan to be as close to the end of the month as possible. This will lower the amount of money you have to bring to the closing.
Here’s how it works. You pay interest on your loan in arrears. For example, your October mortgage payment pays the interest for September. When you close on a loan, you don’t make your first payment until one month after the last day of the month that you closed. So closing on August 29th would make your first payment due October 1st. Since your October 1st payment covers the interest for September, you still have to cover the few days left in August.
If you choose a date as close to the end of the month as possible, it will lower the amount of assets you must verify to close on the loan.
Organize Your Funds
Any money you bring to the closing must be verified. If you have money in several accounts, it could cause a paperwork nightmare for the lender and/or title company. It’s best if you keep all of your money you’ll need to close on the loan in one account. This gives the lender and/or title company one account to verify.
This also helps you
keep track of deposits that you make to cover the cost of the loan. The lender has to keep a close eye on those deposits as well. They need to make sure the money comes from your own sources and is not a loan that you must repay. Be prepared for the lender to track every deposit and possibly ask for more information about them to make sure that they meet the requirements. For example, your mom can’t just hand you $1,000 for you to use on your loan. If she did give you money, it would have to be in the form of a gift, which means a formal gift letter must accompany the deposit.
Know the Cost of Taxes and Insurance Ahead of Time
You will have to prove that the taxes are paid current at the time of the closing and that you have proper homeowner’s insurance lined up and paid.
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The taxes the lender and/or title company will arrange for you. But if you don’t know how much they cost, you could be in for an unpleasant surprise when they tell you the total of what you owe. Talk to the lender long before you close on the loan so you know how much they will require you to bring to the closing. If you are
buying a home, you may be responsible for the taxes for the remainder of the year if the bills are out already. If the bill isn’t out, the lender will determine a prorated amount that you will need in an escrow account in order to cover the taxes when they become due.
You can shop around for your own homeowner’s insurance, but know that you’ll need it paid for one year at the closing. Keep this in mind as you shop around – look for the best deal but also the type of coverage you need. Bring a paid receipt with you so that the lender and title company can see that you carry the proper insurance.
Get a Cashier’s Check or Wire for the Closing
You can’t write a personal check to close on a loan. The title company will require an official check in either the form of a cashier’s check or wire. Either way, make sure you know the exact amount that you need to close on the loan. It has to be exact to the penny.
No matter which method you choose, make sure the funds come from the account the lender already verified. If you try to take them from another account, it could cause more headaches for you at the final moment. The lender will have to re-verify all of the funds and ensure that it is your money and not money from a source that requires repayment.
Carefully Evaluate your Loan Closing Documents
Don’t just assume your loan closing documents are correct and start signing away. Instead, pay careful attention to the Closing Disclosure first. This document details every dollar that is trading hands with this transaction. You’ll see the new loan amount, the money you must bring to the closing, and any other dollar figures that are affecting the transaction.
Beyond the Closing Disclosure, you’ll want to pay careful attention to the other documents you sign including the Mortgage Deed, Note, and all other documents. If you don’t understand something, make sure you ask about it before you just sign it. It’s typically recommended that you use an attorney to help protect you the most when you close on a loan.
A loan closing doesn’t have to be stressful. Taking these simple steps can prepare you for what’s coming and give you the least stress when you get to the final point of your loan.
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