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Lesson 7: The Loan Is Approved - Let's Close


Jewell:  Hello, my name is Jewell DiDucca and welcome to American Consumer Credit Counseling's presentation on home buying.

Our home buying workshop is a nine lesson series focused on the essentials of owning your own home. Today in lesson seven, we'll be discussing closing your loan. Let's get started.

When the final underwriting review is complete and everything is in order, you'll receive your approval to close your loan. During a closing, you'll sit down with your closing agent to review all of your closing documents, to sign them and to make any payments still owed. A closing agent can be an attorney, a title company, an escrow agent or even the lender. There are a few things you should expect during the closing process.

First, your lender is responsible for getting your loan closing documents to the closing agent. Secondly, your lender may also instruct you to also take additional documentation that you may need to provide in order to meet underwriting guidelines. The lender will then instruct the closing agent on any conditions that still have to be met before the closing can take place. The lender will also send instructions regarding the fees and charges to be collected or credited for the closing.

Prior to your closing meeting, the lender should give you an estimate of your closing cost and the balance that you still owe. This estimate should be based on your actual loan amount, date of closing and costs as agreed upon in your purchase agreements. Once you get to closing, the closing agent will review the actual fees with you directly.

It's important that any questions you have about the fees be brought up and resolved before you sign your documents. Do not be afraid to ask questions about anything you don't understand or agree with. It's too late to change or correct anything once the loan is closed.

When home buyers first begin thinking about purchasing a home, they're often confused about how much the closing fees will be. Of course the figure varies on a variety of factors such as the type of loan you're getting, however, the general rule of thumb is that most loans will require a minimum of 3 to 8% of the purchase price to cover the down payment, closing cost and prepaid escrow setup expenses. Home buyers can purchase loan products that require no or lower down payments. However, these types of loans often have a higher interest rate and fees.

When you receive your written estimate from the lender, you may be surprised to see numerous fees that were charged on your behalf. It's important that you be familiar with all of the fees required to purchase a home. Some of the more common fees can include one, the origination fee. This is the cost associated with handling and preparing your loan paperwork and this fee will usually be about 1% of your loan amount. Two, is the loan discount point fees. This is a fee that you can pay to lower the interest rate on your mortgage. Three, there will also be an appraisal fee. Again, this appraisal sets the market value for your home. Four, the lender will also charge you a fee to review your credit report in order to determine your credit worthiness.

You will also be expected to pay a tax service fee to cover charges to set up an escrow account for paying your taxes. A commitment fee to get a commitment or agreement to do the loan, an underwriting fee to get an underwriting decision for your loan, a document preparation fee to prepare the closing documents, a settlement or closing fee for a settlement agent to conduct the closing, an abstract or title search fee to research the title or to update the abstract and the title examination to review the title.

Additional fees can also include the title insurance lenders coverage. This is an insurance policy that protects the lender against any problems that might come up with the title to the property. Title insurance owner's coverage is an insurance policy that protects the buyer against any problems that might come up with the title to the property. Recording fees that are charged by the registrar of deeds to record any documents relating to the sale of the property, state tax, which is a transfer fee charged by the state on all property transactions, survey fees if you had a survey conducted and finally inspection fees for the various inspections that were necessary for the purchase of your home.

Some lenders may also opt to collect some money up front to put into an escrow account to make sure that it will not be short when the bills come due. Shortages do occur because of the time delay for your first payment. For instance, if you close your loan on June 12, the first payment on your loan would not be due until August 1. In this case, you'll be living in your home from June 12 to July 30 without having made a payment. This delay can occur because most lenders need 30 days from the date of closing to set up your account into their system. However, during this time frame, you'll still owe interest, taxes and insurance even though a payment was not collected. The interest that accumulated during this time is referred to as odd-days interest.

Upon closing, you'll also be required to pay the premium for one full year of home owner's or hazard insurance. Depending upon the type of loan that you have, you may also need to pay the premium for your mortgage insurance. The lender will also need to collect property taxes from you in order to bring you current with the payment cycle for taxes.

During your closing meeting, there are a variety of documents you'll need to sign and should be familiar with. These documents include one, the HUD settlement statement. This is the document that lists all of the charges and credits relating to the transaction for both the buyer and the seller.

Two, the promissory note. This is a legal document that states how much you're borrowing, under what terms you're promising to pay it back. It will show your interest rate, the length of your loan, the date your payments start and where your payments should be sent.

Three, the mortgage. This is the legal document pledging the property as security on the loan. It states the conditions and procedures under which the lender may repossess or foreclose on the property if the terms of the note are not met. If a lender forecloses on the property, they have the right to sell the property and use the proceeds to pay off the outstanding balance of the loan.

Four, a truth in lending disclosure. This document discloses the full cost, terms, and conditions for the loan.

Five, the deed, which is the legal document that conveys or transfers ownership of the property from one party to another.

Six, the disclosures. These are the documents that disclose to you in writing certain information regarding your loan and your rights.

And seven, the affidavits. An affidavit is a written statement acknowledging that the information provided therein is true to the best of your knowledge.

After you've signed all of your closing documents, you're well on your way to home ownership. Please remember that the closer should provide you with a closing package containing a copy of every document that you signed. You should keep these documents in a waterproof, fireproof safe. If lost or destroyed, these documents can be very difficult and costly to recover.

This concludes our discussion on lesson seven, closing your loan. I'm Jewell DiDucca with American Consumer Credit Counseling. Please join us next time for lesson eight when we discuss, "You're a home owner, what now?"

American Consumer Credit Counseling (ACCC) provides non-profit credit counseling, debt management services, credit relief and debt relief help to consumers nationwide. Our free credit counseling services help individuals and families learn how to manage debt more effectively and how to get rid of debt more quickly. Our certified credit counselors show consumers the various ways to pay off debt, and we offer affordable debt management programs for getting rid of credit card debt by consolidating debt payments. Our debt negotiation services help with managing credit card debt and paying off debt more quickly by reducing interest rates and finance charges. And our financial education services help consumers manage money more effectively, find reputable debt consolidation companies and answer questions like "How do you consolidate debt?"

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