Checklist of Closing Documents for Home Buyers
So, what kind of paperwork will you have to sign when you close? While the process can vary from one borrower to the next, there are some commonalities that apply to most situations. Here’s a checklist of common documents that are needed for the mortgage closing process.
1. The Mortgage Promissory Note
This is one of the most important documents home buyers sign on closing day, and you’ll soon understand why. This doc is also referred to as the “mortgage note” for short, and sometimes just “the note.”
By signing this document, you are agreeing to repay the mortgage loan as outlined within the document itself. The promissory note will contain important details relating to your loan, such as the total amount you owe, the interest rate assigned, the length of the repayment period (e.g., 30 years), and other key details.
It also specifies where the payments are to be sent, and what happens in the even of default (where the borrower fails to repay the debt).
As a home buyer and borrower, it’s crucial that you read this mortgage document at closing and ask questions about anything you don’t understand. The promissory note obligates you to repay the debt in the manner specified. So you want to make sure you understand it prior to signing.
2. The Mortgage / Deed of Trust / Security Instrument
When you sign the previous closing document above (the promissory note), you’re agreeing to repay the loan in the manner outlined within that document. The actual mortgage or deed of trust, on the other hand, is what gives the lender a legal right to take the home back through foreclosure — should you fail to repay the debt.
This closing document is also referred to as the “security instrument.” What you need to know is this: When you hear your lender talk about “the mortgage,” they’re most likely referring to this document in particular.
The deed of trust is a fairly lengthy form, and most of it is boilerplate. As a borrower, you’ll want to pay particular attention to the fill-in-the-blank portions of the deed of trust / security instrument. Those are the sections that will contain information specific to your loan.
3. The deed (for property transfer).
You’ll notice there are two closing documents on this list with “deed” in the title. They’re actually two separate things. Bear with me.
The deed of trust mentioned earlier (a.k.a., “the mortgage”) gives the lender the right to foreclose on the home if you don’t make your payments. The “deed” covered here is the document that transfers ownership of the property from the seller to the buyer.
The terminology here is confusing. So let’s clarify it again:
Deed: Document used to give the new owner rights to the property.
Deed of trust: Document that allows the lender to take the home in default scenarios.
4. The Closing Disclosure
This is another important document home buyers sign at closing. Actually, you should receive this disclosure before the day you close. Federal law requires mortgage lenders to give borrowers a Closing Disclosure document three days prior to the scheduled close. This gives you time to review the disclosure and, if necessary, resolve any issues.
As its title suggests, the Closing Disclosure shows how much money you’ll have to pay on the day you close. This includes whatever down payment is due, along with all of your other closing costs. Collectively, these items are referred to as your “cash to close” amount.
In a typical home-buying scenario, the borrower will bring this amount to the closing in the form of a cashier’s check. A wire transfer is another option, but most people bring a check.
Home buyers should review this mortgage closing document as soon as they receive it. If something looks different from what you expected, be sure to ask your loan officer and/or escrow agent about it. The idea is to get your questions answered and resolve any issues prior to the closing day, to avoid unwanted delays.
5. The initial escrow disclosure statement.
This document, which home buyers usually sign at closing, shows the specific charges you will pay into your escrow account each month (in accordance with the terms of your mortgage agreement).
An escrow account is a special kind of account used to pay property-related expenses. As a homeowner, you pay money into the account. And your mortgage lender or bank then uses those funds to pay your property taxes and home insurance premiums on your behalf.
When you sign the initial escrow disclosure document at closing, you are basically agreeing to the terms of that arrangement.
6. The transfer tax declaration (in some states)
This is a regional closing document that’s required in some states but not in others. So, depending on where you live, you might have to sign this document when you close on a home as well.
It’s primarily used in states (and counties) that charge a property transfer tax. Both the home buyer and seller have to sign the transfer tax declaration, at or before closing.
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