Buying a home is an exciting but complex process, and one of the final steps is the funding and mortgage closing. Understanding this process is crucial to ensure a smooth and successful home purchase.
From loan terms and amounts to interest rates and closing costs, we will provide you with the factual data you need to navigate this important milestone with confidence. So, let’s dive in and uncover the steps to funding and mortgage closing process on a home loan in 2023!
Reviewing the closing disclosure
Reviewing the closing disclosure is a critical step in the mortgage closing process. It is the final document that outlines all the details of your loan, including the loan amount, interest rate, monthly payments, and closing costs. Here are some key points to consider when reviewing the closing disclosure:
Verify the Loan Details: Carefully review the loan amount, interest rate, and loan product to ensure they match what you agreed upon with your lender. Check for any discrepancies or unexpected changes.
Confirm Payment Terms: Double-check the monthly payment amount and the breakdown of principal, interest, taxes, and insurance. Ensure that you understand and can afford the payment structure outlined in the closing disclosure.
Examine Closing Costs: Review the closing costs section, which includes fees such as appraisal, credit report, title insurance, and origination fees. Make sure all the fees are as expected and that there are no unexpected charges.
Compare to the Loan Estimate: Cross-reference the closing disclosure with the loan estimate provided by your lender at the beginning of the loan process. Look for any significant discrepancies between the two documents.
Seek Clarification: If you have any questions or concerns about the closing disclosure, don’t hesitate to reach out to your lender or a real estate professional. It’s important to fully understand the terms and conditions of your mortgage before proceeding with the closing.
Keep the Deadline in Mind: The closing disclosure must be provided to you at least three business days before the closing date. Use this time to carefully review the document and ask for any necessary changes or clarifications.
Preserve Important Documents: Once you have reviewed and approved the closing disclosure, keep a copy for your records. This document will serve as an important reference throughout the life of your mortgage.
By thoroughly reviewing the closing disclosure, you can ensure that all the terms and conditions of your loan are accurately represented and that there are no surprises on closing day.
Gathering necessary documents for closing
Before the closing on your home loan, there are certain documents you will need to gather. These documents are essential for the final stages of the mortgage process. Here is a list of the necessary documents for closing:
Proof of identification: You will need a valid government-issued ID, such as a driver’s license or passport.
Proof of income: Provide documentation of your income, including pay stubs, W-2 forms, and tax returns for the previous two years. If you are self-employed, you may need to provide additional documents, such as profit and loss statements.
Proof of assets: Include bank statements, investment account statements, and any other documentation that shows your assets, such as property or vehicles.
Employment verification: Your lender may require verification of your employment, such as a letter from your employer or recent pay stubs.
Homeowner’s insurance: Before closing, you will need to secure homeowner’s insurance and provide proof of coverage.
Title insurance: In most cases, you will need to purchase title insurance to protect against any issues with the property’s title. Your lender will require proof of this insurance.
Proof of funds for closing costs: You will need to show that you have enough funds to cover closing costs, which typically include fees for appraisal, loan origination, title search, and other charges.
It is important to start gathering these documents as soon as possible to ensure a smooth and efficient closing process. Your lender will provide specific instructions on what documents they require, so make sure to communicate with them and stay organized throughout the process.
Scheduling the closing date
Scheduling the closing date is an important step in the home loan process. Once the lender has approved your loan and all necessary documents have been reviewed, you will work with your real estate agent and the seller to determine the best date for closing. Here are a few things to consider:
Availability: Schedule the closing on a date when all parties involved, including the buyer, seller, real estate agents, and attorneys, are available to attend.
Timeframe: Consider the amount of time needed to complete any remaining tasks before closing, such as home inspections, repairs, and appraisals. Ensure that the closing date allows enough time to complete these tasks.
Contingencies: Take into account any contingencies outlined in the purchase agreement, such as the sale of another property or the completion of specific repairs.
Funding: Coordinate the closing date with the availability of funds from your lender. It’s important to ensure that the necessary funds will be disbursed in time for the closing.
Convenience: Consider your personal schedule and any logistical considerations when scheduling the closing date, such as travel plans or work commitments.
Once the closing date is scheduled, be sure to communicate the details to all parties involved and make any necessary arrangements to ensure a smooth and timely closing process.
Signing the necessary documents
Once you’ve reached the closing day of your mortgage, you will need to sign the necessary documents to finalize the loan. These documents typically include:
Promissory Note: This document outlines the terms of the loan, including the interest rate, repayment schedule, and consequences of default
Mortgage/Deed of Trust: This document serves as security for the loan, giving the lender a legal interest in the property. It outlines the conditions under which the lender can foreclose if the borrower defaults on the loan.
Closing Disclosure: This document outlines the final terms and costs of the loan, including the loan amount, interest rate, closing costs, and monthly payment. It must be reviewed and signed by the borrower.
Loan Estimate: This document provides an estimate of the loan terms and costs and was provided to the borrower earlier in the mortgage application process. It should be reviewed and compared to the Closing Disclosure for consistency.
Additional Disclosures: Depending on the lender and loan type, there may be additional disclosures that need to be signed, such as flood insurance disclosures or occupancy certifications.
During the closing, you will typically meet with a notary public or representative from the title company or escrow company. They will guide you through each document, explain its contents, and ensure that it is signed and notarized correctly.
It is crucial to carefully review each document before signing to ensure that you understand the terms and are comfortable with the agreement. If you have any questions, don’t hesitate to ask for clarification from the closing agent.
Once all the documents have been signed, they will be submitted for processing. At this point, the loan is considered officially closed, and the funding process will begin.
The process of funding the loan
After all the necessary steps leading up to the loan approval, the next stage in the mortgage closing process is the funding of the loan. This is the point where the lender disburses the approved loan amount to the borrower or to the designated entities involved in the transaction, such as the seller or the closing agent.
Here’s a breakdown of the process of funding the loan:
Loan Approval: Before funding can take place, the loan must be officially approved by the lender. This typically involves a final review of the borrower’s financial documents and creditworthiness.
Prepare Funding Documents: The lender will prepare the necessary documents to complete the loan funding process. This may include a funding authorization form and instructions for the disbursement of funds.
Verification of Conditions: The lender will verify that all conditions for loan approval have been met. This may involve confirming that any outstanding contingencies, such as repairs or inspections, have been resolved.
Wiring Funds: Once all conditions are met, the lender will initiate the transfer of funds. This is usually done through a wire transfer to the designated recipient, such as the title company or closing agent
Confirmation of Funds: The recipient, whether it be the seller or closing agent, will receive the funds and confirm that they have been received. This is typically documented through a receipt or confirmation of funds letter.
Closing Documentation: At this stage, the closing agent or title company will prepare the necessary documentation to finalize the transaction. This may include the settlement statement, deed, and any additional paperwork required for the transaction.
Disbursement of Funds: Once all the necessary documents are signed and processed, the closing agent will distribute the funds to the appropriate parties. This may include paying off any outstanding debts, such as the seller’s mortgage or liens, and distributing the remaining funds to the borrower or the seller.
Loan Servicing: After funding, the loan will enter the servicing phase. This is when the borrower begins making regular mortgage payments to the lender, and the lender manages the ongoing administration of the loan.
It’s important to note that the funding process can vary depending on the lender, state regulations, and individual circumstances. Working closely with your lender and the closing agent can help ensure a smooth and timely loan funding process
Timing and disbursement of funds
Timing and disbursement of funds is an important aspect of the mortgage closing process. Once all the necessary documents have been reviewed and signed, and the closing is complete, the lender will initiate the funding process.
Here’s what to expect:
Timing: The timing of funding can vary depending on the lender and the specific circumstances of the loan. Typically, funding occurs within a few days of closing, but it can sometimes take longer, especially if there are any outstanding conditions that need to be satisfied.
Disbursement of funds: After the loan is funded, the lender will disburse the approved loan amount to the appropriate parties. This includes paying off the seller’s mortgage (if applicable), any outstanding debts or liens, and providing the remaining funds to the borrower.
Paying off the seller’s mortgage: If the home being purchased has an existing mortgage, the lender will use a portion of the loan funds to pay off the seller’s mortgage. This ensures that the property is free and clear of any previous liens.
Paying off outstanding debts: If there are any outstanding debts or liens on the property, such as property taxes or homeowner’s association fees, the lender will use a portion of the loan funds to pay off these obligations.
Remaining funds to the borrower: After the above obligations have been satisfied, the remaining funds will be disbursed to the borrower. This includes any earnest money or down payment that was provided upfront, as well as any additional funds that may be required for closing costs.
If this information overload becomes overwhelming, give our awesome Mortgage Mark team a call for additional support and resources you may need on your home buying journey. We can’t wait to meet you!
Mark Pfeiffer is a Mortgage Loan Originator with CMG Home Loans and a veteran of the mortgage industry since 2003. Mark is responsible for ensuring all loans originated by the Mortgage Mark Team offer competitive terms and close on-time.