Closing on a Home and Escrow Accounts

By: Brian Eber


Youíve finally gotten to the big day: closing day! This is the day that all future home buyers dream about. Unfortunately, many first timers have no idea what actually goes on during this day as they walk into it! Youíll be much better off if you study up on what happens during closing, who is there, and what paperwork you need to sign before you actually start the closing process for your new home.
Who is Present?
Closing meeting practices are different in different states and counties. If you arenít sure exactly what will happen, you can talk to your realtor about the closing process. Normally, though, both you and the seller will have to be present, as well as an attorney and/or closing agent who works for the lender or title company, the lender, and the sellerís realtor.
What Paperwork is Completed?
Closing is really all about signing all the paperwork. Before you sign anything, you need to actually read over it! This is probably the biggest financial transaction youíve made in your life, and you want to make sure all the Is are dotted and all the Ts are crossed. Never, ever sign a form with any blank spaces, as they can be filled in later and still be binding to you.
Hereís the paperwork youíll fill out during closing:
HUD-1: This will look like the Good Faith Estimate you got when you applied for your loan. However, it will provide you with actual costs rather than estimated costs. You can actually look over this document twenty-four hours before closing, so make sure you compare it to your GFE and see that there arenít any major discrepancies that you need to talk to someone about. Since you and the seller may split these costs, you both sign this document.
Final TILA: This is like the original version of the TILA that you got when you applied for a loan. Now, though, it might include some changes brought about by things like discount points or the lenderís appraisal of the home. You should pretty much be aware of whatís on this document before closing.
Mortgage Note: This is a contract that you sign to show youíll pay back your mortgage. It includes information about what steps the lender can take if you fail to pay your mortgage, so itís important that you actually read this contract.
Mortgage/Deed of Trust: You also sign this document giving your lender rights to your home if you fail to pay your mortgage back. Again, make sure youíre reading carefully or at least scanning major sections of the paperwork.
Escrow Accounts
Most of the time the lender will protect itself by requiring that your PMI premiums and insurance premiums be put into an escrow account. These premiums are probably paid once a year, but they will be divided out into your monthly payments. During closing, you may be required to put a certain dollar amount into this account so the lender knows the premiums are going to be paid.
Sometimes you can pay insurance premiums on your own if you have more than 20% to put down on the home. Not all lenders will allow this, but itís worth asking about. You may be able to save a bit of money by paying on your own, though using the escrow account can be simpler and more streamlined.

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