How Closing Costs Work

Dated: August 25 2012

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How closings work

Here are the steps to expect before the keys to your new home are in your hands. 

On closing day of your home purchase, all parties will sign the papers officially sealing the deal, and ownership of the property will be transferred to you. It's your opportunity to make any last-minute changes to the transaction.

The day before closing, be sure to gather all the paperwork you have received throughout the homebuying process. This includes the good-faith estimate; contract; proof of title search and insurance, if necessary; flood certification; proof of homeowners insurance and mortgage insurance; home appraisal; and inspection reports. You might need to refer to these documents at closing.

Most home-sale contracts entitle you to a walkthrough inspection of the property 24 hours before closing. This is to ensure that the seller has vacated the property and left it in the condition specified in the sale contract.

If there are any major problems, you can ask to dlay the closing or request that the seller deposit money into an escrow account to cover the necessary repairs.

At closing, your participation will involve a couple steps:

1. Sign legal documents. There are two agreements to sign: the one between you and your lender regarding the terms and conditions of the mortgage and the one between you and the seller transferring ownership of the property. Be sure to read all documents carefully before signing them and do not sign forms with blank lines or spaces.

2. Pay closing costs and escrow items. Borrowers handle the numerous fees associated with obtaining a mortgage and transferring property ownership in one of two ways. They either roll them into the principal balance of the new loan or agree to pay higher interest rates and have their lender foot the bill. Some buyers may have to pay these fees out-of-pocket.

Who is at closing?
Closing procedures vary from state to state and even from county to county. But generally, these parties will be at the closing or settlement meeting:

  • Closing agent, who might work for the lender or the title company.
  • Attorney: The closing agent might be an attorney representing you or the lender. Both sides may have attorneys. It's always a good idea to have an attorney present who represents you only.
  • Title-company representative, to provide written evidence of the ownership of the property.
  • Home seller.
  • Seller's real-estate agent.
  • You, also known as the mortgagor.
  • Lender, also known as the mortgagee.

The closing agent conducts the settlement meeting and ensures that all documents are signed and recorded and that closing fees and escrow payments are paid and distributed properly.

Slide show: Closing costs: 5 most and least expensive states

Closing documents
You will receive the following important documents:

  • HUD-1 settlement statement: This Department of Housing and Urban Development document is a detailed list of all costs related to the home sale. It is similar to the good-faith estimate you received weeks earlier, but the HUD-1 is not an estimate; it is a precise record of the settlement costs. You and the seller sign it. Compare the HUD-1 statement to the good-faith estimate to see if the actual closing costs differ significantly. By law, you have the right to review the HUD-1 24 hours before closing. Do so. Clear up any mistakes and resolve problems.
  • Final Truth in Lending Act statement: You received the first version of this statement after applying for your mortgage. This final version outlines the cost of your loan and the annual percentage rate, and it accounts for any modifications to your rate and points between application and closing. Make sure that everything is in order.
  • Mortgage note: This document states your promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if you don't pay.
  • Mortgage or deed of trust: This document secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.
  • Certificate of occupancy: If you are buying a newly constructed house, you need this legal document to move in.

Once you've reviewed and signed all closing documents, the house keys are yours — and you will have successfully purchased your new home.

Blog author image

Humberto Alcazar

I am lifelong El Pasoan who has seen El Paso grow from a small town in 1965 to the large city it is today. Attended Cathedral High School, graduated from University of Texas El Paso with an Industrial....

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