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From Spotlight: Smart Money Tips for First-Time Home Buyers

Keep Your Cool – Here’s What Really Happens at Closings

Details matter, especially when it comes to the all-important Loan Estimate and Closing Disclosure.

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This article was contributed by financial expert and blogger Lauren Bowling, a recognized thought leader in the millennial finance space. A full-time online business owner, Bowling teaches others how to master their finances and create their own economy via her body of digital products, free online courses, and weekly blog content. 

After all of the components of the home buying process — negotiations, appraisals, inspections, and insurance — it’s exciting to (finally) get to closing. But do you know what really happens during this final appointment? Closing on a home can be nerve-racking simply because many first-time buyers don't  know what to expect or what to bring along.

Here, we’ll walk through all the details of what to expect at closing.

Scheduling and Closing Attorney Selection

The closing date is typically set in the offer letter, because most sellers will want to know when they can expect the closed sale once the home is under contract. Typically, closing is set 30 to 60 days from when the offer is accepted, although this can change depending upon various factors, including inspections and paperwork processing with the lender.

Depending on the state you live in, closing may take place at the closing attorney’s office or the title company. It’s the buyer’s right to choose the closing attorney. This person acts in the interest of the buyer and takes care of the “housekeeping” items of the closing, such as preparing paperwork, making sure all paperwork is properly signed, conducting a title check on the property, and receipt and distribution of money. The fee for the closing attorney is often included in the closing costs.

If you’re buying a home with an FHA loan, a mortgage loan option backed by the Federal Housing Administration that allows home buyers to put as little as 3.5% down, many lenders may recommend one of their pre-approved attorneys. If you, as the buyer, don't have an attorney, the lender can also choose one for you, but you’re not required to accept that recommendation.

Paperwork You’ll Receive

Home buying consumers should familiarize themselves with two pieces of paperwork: the loan estimate and the closing disclosure. Both of these tools explain the loan terms, like interest rate and other costs associated with the loan (taxes and recording fees, etc.). You should receive the loan estimate no more than three days after your loan application. Keep the estimate in a safe place to compare with your closing disclosure and check for any discrepancies. 

Your lender must provide you with a closing disclosure, which will look very similar to your loan estimate, no later than three days before closing, Double-check the interest rate information, address, and all other relevant information for accuracy. If something appears different than what you expected, contact your mortgage broker or lender for clarification.

The closing disclosure will detail information about your mortgage loan and the exact amount you’ll need to bring to closing to cover closing costs. 

On the day of closing, you’ll receive the following paperwork:

  • Mortgage note stating you agree to repay the loan
  • Deed of trust to secure mortgage note

What to Bring

  • Cashier's check for closing costs (or paperwork confirming of funds from your bank)
  • Proof of homeowners insurance (likely already verified, but bring a copy to closing just in case)
  • Copies of any paperwork you’ve received from contract to close (again, just in case, for your reference)

Common Mistakes to Avoid

Given the length of time between contract and closing, most closings should be fairly routine and go smoothly, because all of the legwork has been done before this date (such as checking the title, inspecting the home, loan underwriting with the lender, etc.) Unfortunately, hiccups can happen, which is why it’s best to avoid these common mistakes:

  • Try to avoid closing on the last day of the month. If something goes wrong, you’ll want time to correct. This is because prepaid interest on the loan accrues and is due at closing, and if pushed to a new month, the interest will continue to build. 
  • Don't skip the final walk-through. Buyers should do this to ensure no new damage has been made to the home shortly before closing. If buyers opt not to do this, they cannot hold the seller responsible for damages after transfer of property at closing.
  • Don't make any big financial purchases between contract and closing. The bank loaning the money for the mortgage has financed the home based on the most current financial information available. If you finance a car, an appliance, or any other big purchase, this affects your financial information and can delay closing on the home significantly. Unless you're facing the most dire circumstances, hold off on big purchases so that you can get into your first home as quickly as possible.
  • Don't skim the closing documents. You want to check for typos on names and addresses.

Armed with the information above, first-time buyers should feel comfortable going into their first closing. Once the closing is over, you should receive keys (unless otherwise negotiated with the seller), and you’re officially the owner of your new home!

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Lauren Bowling

Lauren Bowling is the award-winning blogger and editor behind personal finance site "Financial Best Life" and author of "The Millennial Homeowner: A Guide to Successfully Navigating Your First Home Purchase." She's contributed to such financial sites as "CNNMoney" and "Forbes."