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How Mortgage Closing Works
Closing is the final step in the mortgage process. After you have received final underwriting approval from your lender and satisfied all of the conditions to close, your mortgage is ready to fund. Mortgage closing involves multiple parties and a lot of documents so you work with a settlement agent, also known as a closing agent or escrow agent, to make sure the process runs smoothly and that your loan closes according to schedule. Despite the high number of people and significant amount of paperwork involved, the specific mortgage closing and funding process usually takes less than a week.
The settlement agent manages all of the closing logistics including the preparation and distribution of loan documents, recording your loan with the appropriate county office and administering the transfer of funds and legal documents to all involved parties, including the property buyer and seller. The settlement agent provides borrowers with final loan documents the week your mortgage is scheduled to close. After you have reviewed and signed all of the documents related to the mortgage and home purchase process, the final step is for those documents to be recorded and for your loan to fund.
- Review our Summary of Important Mortgage Loan Documents
Be sure to review the Closing Disclosure, one of the key loan documents, carefully prior to finalizing your mortgage. The lender must provide a Closing Disclosure to the borrower that outlines the final, actual terms of the mortgage at least three business days before the loan closes. You can use the Closing Disclosure to make sure that your final loan terms are consistent with the terms that the lender committed to providing you at the start of the mortgage process and that you are not being overcharged. If you determine that your final mortgage rate or closing costs, as outlined in the Closing Disclosure, have increased significantly without explanation you should cancel, or rescind, your mortgage.
For a home purchase mortgage, you can cancel your mortgage at any time before you sign loan documents and you are free to work with a different lender. Please note, borrowers cannot cancel the mortgage after they have signed loan documents
After reviewing your loan documents, if you are comfortable moving forward with the mortgage you sign the documents and the lender wires your loan proceeds to the settlement agent -- this is also known as wiring funds. The settlement agent then sends the grant deed and deed of trust (or mortgage, if you are in the southern U.S.) to the local county recorder office. Once these documents are recorded by the recorder office, property ownership is transferred from the seller to the buyer and the mortgage and property purchase transaction become a matter of public record.
After the transaction has been recorded, the settlement agent then distributes all of the funds in the escrow or trust account, including your mortgage proceeds, to the appropriate parties. The property seller's bank is repaid if there was a loan against the property, third party service providers such as the lender, appraiser, title company, settlement agent and real estate agents receive their fees and commissions, city governments receive any property taxes due, the seller receives whatever money remains after everyone else is paid and the buyer receives title to the property. In short, everyone is paid the money they are due and the property buyer officially owns the home and has a mortgage.
The chart below outlines the key steps to recording, funding and closing your mortgage.
Now that your mortgage has closed it is time to celebrate but before you pop the champagne there are a couple of last minute items to remember. Be sure to review the first payment letter provided by the lender, which notes your monthly mortgage payment amount, when the payment is due and payment method. The last thing you want to do is pay a late fee because your were late with your first mortgage payment. Review our First Payment Letter video below to learn more about this important document.
The table below compares mortgage rates and closing costs for leading lenders in your area. We recommend that you contact multiple lenders to find the loan and program that best meet your needs. Shopping lenders and comparing loan proposals is the best way to save money on your mortgage.
Sources
"Close on Your Home." Know Your Options. Fannie Mae, 2019. Web.
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