During the closing of your home, you will accumulate a mound of documents. It’s a good thing most of it is boilerplate paperwork and you can do a quick glance over it.
- You will sign a final mortgage application, so make sure it’s accurate.
- Make sure the costs match your Closing Disclosure and the recent Loan Estimate.
- The note provides loan terms and amounts, make sure they are what you agreed on.
The best thing to do is get your final documents a few days early so you can review them all at home and take your time.
Do You Have to Read Everything?
There are two different opinions when it comes to closing paperwork. Some people say to read everything. Some people want you to take notes and analyze every sentence. Then there is the other way of thinking, only reading the important parts, not the filler.
There is so much added to this paperwork that you would literally have to set aside hours of your day to not only read it, but to understand it. It’s important to know that it could benefit you to read everything in your closing material. It’s not required, but there are some parts you should read.
Paperwork During Closing
The biggest problem with paperwork for closing is there is too much of it. VirPack did a study and found that nearly 60% of all loan files had between 501 to 2,000 pages. While closing paperwork is less extensive, there is still a lot.
It may seem unreasonable to require buyers to read all of that, but there are some important parts you should not skip:
- The Sale Agreement- This is not really considered a part of the home closing package, but it’s important to it. The sale agreement will set out the transaction conditions and terms. Everything that follows is related to the sale agreement. You should review this with your attorney or broker before you sign it.
- The Loan Estimate (LE)- The federal government created this form to explain loan offers. The font is usually extra large and it’s an easy read. The LE form is typically given to you a day or two after you apply for a mortgage or any “material” changes to your loan application. Only sign after you have carefully read and fully understand what the details explain.
- The Mortgage Application- This is commonly called the Uniform Residential Loan Application, Fannie Mae Form 1003, or Freddie Mac Form 65. You will sign a final version of your loan application at closing. You need to make sure this document shows the correct values for your assets, income, and property use (vacation home, rental, or primary residence).
- The Closing Disclosure (CD)- This is another federal form that you need to read front to back. This should be pretty similar to the Loan Estimate you received. If you notice any changes or discrepancies, talk to your closing agent or loan officer. It’s also important to know that if the CD charge is more than the LE charge, the lender is responsible to make up the difference.
- The Promissory Note- This describes the loan that you are taking out. The information included states the starting loan balance, the payment due date, the mortgage interest rate, the total you will pay with interest, loan terms in years or months, if and when the payment can change, and the payment address.
The Fine Print
Boilerplate language is found throughout real estate documents and is accepted by the courts. There is one financing point, you want a home loan and a lender wants to lend you the money. The lender also has an important job of making sure you meet all requirements set by the loan program and that you can afford to pay.
There are several important things to consider. First, if you are looking at these documents from an investment point of view, make sure the loan says it’s for an investment purpose. Loans for investment purposes are different from primary residence loans and you need to correct any mistakes. If you do not correct a mistake, you could get in trouble for perpetrating fraud.
Second, make sure the loan program, costs, and rates are what you expected. For adjustable-rate mortgages, there should be a rider that says when your interest rate can change. For government-backed loans, there will be specific disclosures for that program.
Finally, take a close look at how the property is going to be titled. If you are married and plan on buying jointly, the deed should reflect this. Married couples are given special benefits and protections and the deed needs to be correct.
Read Closing Paperwork Early
It’s stressful to sign closing paperwork when you have not had the time to look it over. It’s not always ideal to review all of this paperwork when you have a couple of loan officers or attorneys waiting on you.
You are allowed to request a copy of this paperwork at least a day in advance. This will allow you time to review everything at your leisure. You will also be allowed to write down any questions you may have, so you can ask for clarification before closing.
It’s best to make sure your loan officer or mortgage broker will be available at closing, via telephone, or in person. They will be able to assist you with any questions you have. Do not sign any paperwork that you do not understand. Before you commit to an expensive and important purchase, make sure you know the details of the deal inside and out.