Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
After a mortgage is approved, lenders will work with you to get any outstanding items satisfied so that the loan will be released for closing in a timely manner. In working towards your closing, there are many basic items to consider, like when does your mortgage commitment expire, and what documentation would be needed to get that extended? When does your rate-lock expire and what are the alternatives if you cannot close on time? If you are buying a home—does your contract specify a particular deadline for closing? If you are in a rental, is there a specific date when you have to vacate your current residence? Will your lender be able to complete their loan approval process in time for the closing?
While these are just a few of the many items to consider and discuss with your loan officer, knowing what to expect prior to a mortgage closing, and what happens at the actual loan closing will help ensure a smooth transaction and no last-minute surprises.
It is important to have a conversation with your team of professionals such as your real estate agent, attorney and mortgage company in advance of signing any contracts. “Educated clients are in a better position to foresee and anticipate the decisions to be made throughout the transaction,” says Jan Meyer, Esq., an attorney in Teaneck. “There are many decisions to be made, and if you plan it out in advance, you are better suited than the other side.” Such decisions could include issues such as what is included in the purchase price, can the purchaser move into the property before they close, property inspection issues, the deposit amounts and knowing the financial planning picture, to name a few. “Knowing the variables in advance and planning them out early, could easily give you the ‘upper hand’ during negotiations, and ensure a better transaction,” adds Meyer.
When buying a home, before you sign any papers, do a final walk-through of the home. Make sure everything that you and the seller agreed would be repaired has been repaired, and anything the seller agreed to leave in the house is in place. If it isn’t, contact your agent or attorney immediately to discuss. For example, if the seller hasn’t fixed something they agreed to fix, they may agree to give you money to put towards your closing costs (known as seller credits) instead of trying to make the repair before closing. If this is your first time buying a home, and you’re nervous about what to look for during your walk-though, feel free to bring along a trusted advisor to help you inspect the premises.
Insurance is a last-minute item that many homeowners rush to handle, and might not get the proper time needed to fully research properly. Ask your advisors if they have any recommendation for a homeowner’s insurance company. When comparing the cost and coverage amounts, see how your premium would change if you increase or decrease the deductible. It is highly advisable to share your options with your loan officer and confirm that they meet the lender’s requirements for homeowner’s insurance coverage. Of course, you want to make sure that the coverage limits are adequate for your needs as well so that if something happens to your home, you will be well covered. Also determine if you need any other type of insurance like flood insurance or personal condo/co-op insurance.
For example, when you are buying into a multi-unit building, your condominium association’s or co-op board’s fees usually include master insurance for the common areas of the building but you will also need your own insurance for your particular unit.
For loans originated before October 2015, the closing statement will is the “HUD-1 Settlement Statement,” but for newer applications, the new form is called a “Closing Disclosure.” Lenders are required to provide your Closing Disclosure three business days before your scheduled closing. Sometimes little change might occur in the last few days before closing, but if something important changes in regards to your loan, you will receive a new Closing Disclosure.
Things to check and confirm on your Closing Disclosure include checking the spelling of your names, confirming the loan terms, the loan program, the closing fees, and that the loan type all match your most recent Loan Estimate. Confirm that the loan amount, the interest rate, and the total payments all agree with what you were promised during the loan process. Finally, confirm that any penalties or restrictions are or aren’t applicable as discussed with your loan officer and lender.
The ‘Note’ is the legal document that you sign in which you agree and obligate yourself to repay the mortgage. The Note will provide you with details regarding your loan, including the amount you owe, the interest rate of the mortgage loan, the dates when the payments are to be made, the length of time for repayment, and the place where the payments are to be sent. The Note also explains the consequences of failing to make your monthly mortgage payments. You should read this document carefully and if something is different from what you agreed upon, you should discuss with your lender right away.
This document may be called the Mortgage, Security Instrument, or Deed of Trust depending on your locale. When you sign this document, you are giving the lender the right to take your property by foreclosure if you fail to pay your mortgage according to the terms you’ve agreed to. This document restates the basic information included in the Promissory Note, as well as explains your responsibilities and rights as a borrower. For example, if the Occupancy section states that you will occupy the property as your principal residence, then you must do so. If you do not move in and continue to use the property according to the conditions in the mortgage, you would be in default of your mortgage.
Your monthly payment includes your current payment for principal and interest on your loan plus extra money put into “escrow” for upcoming tax and insurance bills. Whether you pay escrow to the bank with your mortgage payment or not, the monthly principal and interest payment of your actual mortgage will never change assuming you are in a fixed rate mortgage.
Initial Escrow Disclosure
The Initial Escrow Disclosure Statement details the specific charges that you will pay into escrow each month as part of a mortgage agreement. This form will detail how your escrow money will be disbursed as needed. The breakdown includes your monthly escrow payment, any disbursements (withdrawals) to pay taxes and insurance bills, and the running balance held in the account. It is important to note that the escrow amounts could change over time if your taxes or insurance amounts change. Also note that anything that is paid out of the escrow account, you will not have to pay separately.
Right to Cancel Disclosure
If you are refinancing a loan, you have a right to cancel the loan within three business days. This document explains the rules for when and how you can cancel your loan, and what happens if you do cancel the loan. If you are purchasing a new home with a mortgage, you do not have the right to cancel your loan after closing. To cancel your loan before the funding, you will need to properly notify your lender in writing to ensure it happens in a timely and proper manner. In some circumstances if some of the information on the Closing Disclosure is missing or wrong you can have longer to formally cancel your loan.
There are many factors and documents involved in a real estate closing. Many are required by the lender, and some are required by state and federal law. Regardless of who requires a document, you have the right to take your time and review them all carefully. Make sure the information on the closing documents is exactly as you were expecting. If things do look different than what you were told or expected, you should ask your lender or attorney to fully explain. Of course, there is no substitute to working with a competent lender and someone who you trust has your best interest in mind to ensure the smoothest transaction and loan closing.
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