Decoding the Key Closing Documents
Do you understand the closing process when you purchase a home, particularly the documents you will see at the closing table?
If not, you’re far from alone.
In survey of 1,000 homebuyers conducted by Qualia, only one in five homebuyers said they comprehended all the documents they signed at closing, while one in four future homebuyers reported they don’t understand the closing process at all. So, it shouldn’t come as a surprise that many homebuyers often name the closing process as one of the most stressful parts of purchasing a new home.
“It’s understandable given how big of an investment buyers are making and how emotionally involved buyers are when they purchase a new home,” says Nancy Kroll of Chicago Title.
Kroll says the closing process has become increasingly complex over recent decades given a swelling number of laws at the state and federal level, many of which were crafted to protect consumers and ensure a legitimate process. In the 1990s, Kroll says, the typical closing package might include 15 documents. Today, it is four times that amount.
With more than 36 years of experience at the closing table, Kroll outlines the key closing documents buyers should understand:
The master statement features the transaction’s final financial numbers, which includes charges from the lender, attorney, seller, and title company. It contains the figure buyers need to bring to closing and dictates how the title company distributes funds to all involved parties.
The deed conveys the property from the seller to the purchase. The title company records the document, which then becomes public record as its ownership.
The survey shares legal descriptions of the land, including its boundary lines and other elements that make up the property. It is a critical document for all homeowners to have and often necessary if you wish to make improvements down the line, such as adding a pool or fence.
Owner’s Title Policy
This document, which the title company provides 6-8 weeks after closing, confirms ownership of the property. It features details like the purchase price and lender’s name, while denoting that you have a free and clear title to the property.
And if you are purchasing the home with the help of a lender, Kroll also encourages buyers to carefully review three additional documents:
Preliminary Closing Disclosure
A consumer protection measure, this important document will actually hit your hands before the closing table. Here, the lender identifies all estimated fees. You have three business days to review this document and ensure the loan details match what you expected.
The note is your promise to pay back the loan. The document lists the interest rate and the mortgage terms.
The mortgage document states your rights and responsibilities as a borrower. The title company takes this document and records it after the deed, which protects the lender. It creates a lien on the property, which prevents transfer of the property unless the mortgage is paid in full.