After the contract has been ratified and the loan has been approved, you and the seller will attend settlement to complete the sale. At settlement you will sign your loan documents and pay the seller and the seller in turn, will deed the property to you.
When the title company receives your contract from your real estate agent, the following steps are taken (as required by your contract and/or lender):
- Order title abstract and survey
- Review title abstract and survey to determine marketability and insurability
- Contact your lender to schedule settlement and prepare any required documents
- Contact the seller’s lender to obtain the amount needed to pay off the seller’s existing loan(s)
- Prepare title insurance commitment pursuant to lender requirements
- Contact the local taxing authority to verify the amount of property taxes and determine prorations between buyer and seller
- Contact Homeowner’s Association (if applicable) to verify the amount of homeowner’s dues and determine prorations between buyer and seller
- Obtain the lender’s loan documents and proceeds check
- Prepare the settlement sheet and any other required documents.
- Obtain your funds in the form of a cashier’s or certified check or by bank-wired funds prior to settlement in order to comply with state law and your loan conditions.
Settlement will be conducted by an attorney or licensed settlement agent who will go through the settlement documents as you sign them, explaining the purpose of each. Since many of the documents you will be signing at settlement need to be notarized, you will need to bring to settlement a current form of identification containing your picture. Examples of acceptable forms of identification include driver’s licenses or passports. This process usually takes 45 minutes to an hour. Unless you are assuming an existing loan or paying cash, you will be signing quite a few documents at settlement. Some of the documents that you will be reviewing and signing are:
- Settlement Statement: This form details all the charges and credits to the buyer and seller. The buyer’s figures are on the left-hand side of the page, the seller’s on the right.
- Closing Disclosure: At least three days before your closing, you will receive a Closing Disclosure, which is a five-page document that gives you more details about your loan, its key terms, and how much you are paying in fees and other costs to get your mortgage and buy your home. You will have signed it in advance of closing, but you will resign it at closing. The Closing Disclosure incorporates the statutory and regulatory requirements of disclosure under the federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act.
- House Location Survey: If the home you are purchasing is a single family detached home or a townhouse, your lender may require that you obtain a House Location Survey. This document is prepared by a licensed surveyor for the purpose of showing the location of the improvements (structures within the boundaries of the property). You will receive copies of the survey at settlement.
- Note: The Note is your agreement to repay the borrowed funds to your lender. This document will detail terms and conditions of your loan and the manner and form of repayment of the borrowed funds
- Deed of Trust: This document is a standardized security instrument filed at the courthouse to establish the lender’s lien on the property for the original principal amount of the loan. The deed of trust secures the home as the collateral for the repayment of the loan. This document provides that in the event of default or non-payment, the lender may direct the trustees to foreclose on the property in order to recoup the loan proceeds
- First Payment Letter: This document gives a breakdown of the total amount of your monthly payment. The total monthly payment will typically include principal and interest as well as any escrow for taxes, hazard insurance or mortgage insurance.
- Loan Approval Letter or Loan Commitment Letter: This is a letter from the lender which explains that your loan has been approved on certain terms and subject to certain requirements. The letter will state the terms of the loan, i.e., loan amount, interest rate, length of the loan. The lender will also list any additional requirements, such as a hazard insurance policy naming the lender as mortgagee, a survey or a termite report.
- Loan Application: You may be asked to sign a printed copy of the loan application. This typed form is a confirmation of the form the loan officer filled out when you applied for the loan. The lender is asking you to verify that the information is substantially correct, and that there have been no material changes in your employment, marital or financial status.
- Flood Insurance: This document will inform you whether your home is located in a flood zone. If it is, the lender will require you to carry flood insurance on the property. If it is not, as is usually the case, the form will inform you that if the Federal Government ever deems your property to be within a flood zone, the lender will require you to obtain flood insurance.
- Name Affidavit: By signing this document you certify to the lender that you are known by all the variations of your name that the Lender has found on the credit report or other documents used in processing your loan.
- Signature Affidavit: Your lender may require you to sign a statement that your signature on the loan documents is your legal signature, and that you agree to be bound by documents with this signature.
- Tax Authorization: Some lenders have you sign written instructions to the local real estate taxing authority authorizing it to send the tax bill directly to the lender who is holding money in escrow for payment of that bill.
- Termite Inspection: If applicable, You will be asked to acknowledge receipt of a copy of the termite inspection report. This report is prepared by a licensed exterminator and indicates whether any evidence of infestation has been discovered.
- Truth-in-Lending Statement: The Truth-in-Lending disclosure is required by Federal law to be provided to each borrower. The purpose of this document is to disclose to the borrower an estimate of the annual cost as well as the total cost of the loan over the full term of that loan, factoring in all costs and fees incurred in placing the loan.
- W-9: This is an IRS form giving your social security number and new mailing address. You fill this out so that at tax time you can deduct the interest you pay to the lender.
In order to complete the process of settlement, your title company will do the following, as required:
- Record the deed, deed of trust or assumption documents in the land records at the county courthouse
- Audit the disbursement sheet
- Disburse all proceeds
- Issue the title insurance policy
- Send the lender the packet of all signed documents
- Pay off the seller’s lender, if any, and obtain and record a release of the Seller’s deeds of trust
- Disburse any funds required to be escrowed at closing