What Happens at Settlement?
If you’re in the final stretch of buying a new house, it’s still not quite time to pat yourself on the back. You’ve made it this far and are inches away from owning your dream home. Now that you’ve jumped through all of the necessary hoops and obstacles, there’s one final, significant hoop you must prepare for: Settlement Day.
As with every other step in the home buying process, it helps to know what to expect before you sit down at the settlement table. I know, you can practically feel those shiny new keys in your hand, but there is still a possibility that something might go wrong. Preparing in advance can help you avoid certain issues and increase the chance that everything will run smoothly.
Depending on your situation, the number of people who will be in attendance will vary. Aside from you and the seller of the house, other people who might be there include your or the seller’s attorney, real estate agents, a closing agent (someone from your title and settlement services company), as well as a loan officer, if you hired a local lender.
The closing can be held in any agreed upon location, such as your title and settlement services’ office, your lender’s office, or a real estate attorney’s office.
Once everyone is in the right room, business can begin. One of the main tasks you’ll be doing is reading and signing all of your loan documents.
The major items you need to sign during closing are the ALTA Settlement Statement (list of final credits and closing costs for you and the seller), the Borrower's Closing Disclosure (describes your loan terms ad closing costs), the mortgage (document that says you agree to a lien on your property to ensure you’ll repay the loan), and the promissory note (a legal agreement that you will pay the mortgage lender on agreed terms).
Be sure to read this carefully; there may be a situation where something is different than what you expected or agreed to. In this case, you’ll need to resolve the issue before signing.
You’ll also need to prove that you obtained homeowner's insurance and completed all necessary inspections, if applicable. If you’re making a down payment, you’ll then need to give a certified or cashier’s check to cover that as well as any other outstanding closing costs.
Additionally, you may need to create a new escrow account with your mortgage lender so you can pay your property taxes and homeowner's insurance with your monthly mortgage payment.
As you can tell, there will be a lot to read and sign, and if your settlement company is “on the ball,” the process should take no more than an hour. In some cases, it may take a bit longer if your lender encounters any delays when sending their loan documents or the wire for your loan amount to the settlement company. If an unexpected issue pops up during your final walk-through inspection, that could create an additional delay as well. As a result, if you’re selling one house and buying another all in the same day, it might create a few challenges if either settlement gets delayed.
Our advice would be to avoid scheduling settlement for the last week of the month. There is a misconception in the real estate industry that if you make settlement at the end of the month, it saves the buyer money. Not only is this not true, but many lenders are so overwhelmed with the number of closings that are scheduled for the last week of the month, your chances for a delay increase significantly.
Sure it can be a long process, but once you walk through the front door of your new home, you’ll be happy you braved through it.
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