What costs should I expect at the loan closing?
At the loan closing, you will be required to pay your down payment and other various closing costs and fees.  Most of the closing fees are paid by the buyer, but some of the fees are prorated, by date, to the seller and the buyer.  In order to be prepared to pay the closing costs, you may request a Good Faith Estimate from the lender.   However, the estimate often differs from the actual closing costs, so it is important to understand what to expect.

Before you make long term decisions about the terms of your mortgage, such as locking in an interest rate, you should review the Good Faith Estimate to determine if there are hidden costs that may change your decision.

Typically, total closing costs will be from 3-6% of your mortgage amount.   Although the Good Faith Estimate is subject to change, under (RESPA) the Real Estate Settlement Procedures Act, you have a right to request a HUD-1 Settlement Statement (one day before the actual settlement or closing).  The HUD-1 details the actual fees that will be required.  It is important to review this statement to ensure that you agree with and understand all the costs and fees listed.

At times, fees such as the application fee, credit report fee, or the appraisal fee may be required with the loan application before the closing.  Certain fees vary from lender to lender, but generally, taxes, appraisals, credit reports and title insurance should be comparable for all borrowers.  Sometimes, your fees may be included in the mortgage amount, depending on the terms negotiated.  But generally, the buyer comes prepared to pay the related fees at the time of the loan closing.  Common closing costs and fees that you may expect are:

Loan Origination Fee:   a percentage of the mortgage (generally 1%), charged to set up and evaluate the loan application
Application Fee:   required by the lender to process your loan application, often required with the application, generally non-refundable

Credit Report Fee:   requested by the lender in order to evaluate your loan application (generally obtained from one of three major credit reporting agencies: Equifax, Experian, TransUnion)

Appraisal Fee:   used to obtain an independent appraisal of the home to be mortgaged; the appraisal is a factor in determining the amount the lender will loan

Survey Fee:   may be required - verifies the legal position of the home on the property and ensures that there has been no encroachment on the property

Title Search Fee:   charged for a detailed search of the historical records related to a property to ensure that the seller is legal owner, that there are no liens, restrictive covenants, outstanding judgments or other claims against the property  (A certificate of title issued as a result of a title search does not necessarily protect against hidden defects which did not show up in the search – often the lender will require title insurance for protection against such claims)

Title Insurance:   often required by the lender for protection against hidden title defects; a lender’s policy only protects the lender – a buyer may also opt to purchase an owner’s title insurance policy

Discount Points:   optional payment to lower the interest rate (each point is 1% of the mortgage amount - $120,000 mortgage discount point would cost $1,200 and typically lower the interest rate by 0.125 percent)

Recording or Transfer Fees:  a small fee charged to cover the paperwork to record the home purchase and transfer ownership
Interim Interest:   interest from the closing date to the end of the month generally charged to the buyer
Property Taxes:   buyer’s prorated portion of state and local government property taxes already paid by the seller (such as annually paid taxes)

Escrow Account Payments:   (often required by the lender) charges to cover costs or payments which will be due after the closing; escrow accounts are often set up to continue for the life of the loan, where a specif

What is the procedure at the loan closing?
The loan closing is a process of finalizing the sale and the loan.  The seller, buyer and lender (generally with the aid of an escrow agent) execute the final documents.  You will receive a commitment letter from the lender once the loan application has been approved. 

• Once you have the loan commitment letter, you can set a settlement date for the closing
  

It is important that the settlement take place before your “rate lock period” expires.  A rate lock is a commitment by the lender to hold a promised interest rate and points for you for a specified period of time.  Although longer rate lock periods generally cost more, there are other ways to influence your interest rate.

It is also important to have any final inspections done before this set settlement date, especially if any repairs or maintenance are part of the purchase agreement.

• You should be prepared at the closing to pay the down payment and any closing costs applicable to the buyer.
  

Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to give the buyer a Good Faith Estimate of closing costs within three business days of receiving the loan application.  This estimate lists the costs that the buyer is likely to pay at the settlement. 

For the actual closing costs, you have the right to request to see The HUD-1 Settlement Statement (the prescribed form from the U.S. Department of Housing and Urban Development) one day before the actual settlement.  The escrow agent fills out the Hud-1 statement.  Prior to the closing, you should review all items on the settlement statement and all documents that you will need to sign in order to clarify any misunderstandings.

• All participating parties will sign the necessary documents at the closing.  Make sure you understand what you are signing.  Some of the documents are:
  

The HUD-1 Settlement Statement
This statement must be signed by both the buyer and the seller.

1. The Deed
   The deed is the legal document that transfers title to real property.  The deed should contain an accurate description of the property, be signed and witnessed according to the laws of the state where the property is located, and should be delivered to the purchaser (after the agent officially records the deed).
   
2. The Mortgage
   The mortgage is a lien on the property that gives the lender the right to foreclose on the property if you default on the loan.
   
3. A Deed of Trust
   A deed of trust is a document used in some states instead of a mortgage, that transfers legal title of the property to the trustee until the loan is paid off, giving the trustee the power to sell the property to satisfy the debt in the case of default on the loan.
   
4. The Note
   The note is the legal debt document and a promise to pay according to the terms of the loan.
   
5. The Truth-in-Lending statement
   The truth-in-lending statement is a mandated if there have been any changes in loan terms since the loan application.  It must disclose the terms of the loan, the interest rate, the loan amount, the annual percentage rate and the total payments required.
   
6. The Initial Escrow Statement
   The initial escrow statement lists the estimated costs to be paid from the escrow for the ensuing year, the escrow payment amount and any required cushion. 
   
7. The Mortgage Servicing Disclosure Statement
   The mortgage servicing disclosure statement tells the borrower whether the lender will be servicing the loan or transferring it to another lender.  It is important to know when your first payment is due and where it should be made.
   

After the escrow agent properly records all the documents, you may take possession of your property according to the settlement agreement.

ied portion of the mortgage payment goes into escrow to cover certain on-going property related expenses and payments such as taxes and insurance.