This simple, four-step walk-through to loan closing will help you understand the procedure and give you an idea of what to expect.
When initially meeting with a mortgage professional, they will request and collect the information needed to process your loan. Documentation requirements vary depending on the loan program you apply for, as well as your individual financial and credit profiles. Subject to your overall profile and documentation, your mortgage professional should send you a commitment letter detailing any documentation requirements you’ll need to meet should your loan be approved. At the same time, they will most likely order an appraisal. At this point, you’ll have the option to lock in your interest rates or float it.
Items To Discuss Early In The Process
Floating The Rate: You’ve applied for your loan but you’ve also decided to wait before committing to an interest rate, perhaps because you think interest rates stand a chance of going down in the short-term. Your loan can typically stay in a float status up until 10 days before closing in most cases. During any float period, you can stay up to date on interest rate by signing up for the daily interest rate e-mail available on most mortgage professional Web sites. It’s important to remember, NOT locking in is something of a calculated risk.
Locking In: You and your lender commit to a range of interest rates for a specified period of time – typically up to 180 days for new construction loans. During that period, your interest rate range is protected from increases. If you close your loan during that period, you get the rate range. If you go beyond the lock-in period without closing, you may have to work with the rate ranges available at that time. Locking in is something of a calculated risk.
There are also some reasons why a rate could change even during a lock-in period. For instance, a change in your credit profile could occur, you might decide to change your down payment, or you might change your mind on how many discount points you want to pay.
Whether you decide to lock or float, you’ll be taking a calculated risk. It’s a tough decision, and you’re the only one who can make it. Talk with your mortgage professional to get an idea of what interest rates have been doing recently. You should also find out if there are any economic events coming up that could affect mortgage rates in the short term.
2. Title Insurance
There are two types of title insurance: one protects the lender, the other protects the borrower from claims against your ownership of the property. Such claims might be made by undisclosed spouses, heirs of previous owners, creditors holding liens against previous owners, or other parties. Your lender will most likely require you to purchase a title policy, which will cover their interest in the property.
It’s up to you if you would like to purchase a policy to protect your interest in the home. Your mortgage professional should be able to recommend a title insurance company who can provide you with additional information about the policies available in your area.
3. Homeowners Insurance
As mentioned on other posts, most mortgage lenders require proof that you’ve purchased homeowners insurance at closing.
In the event of a loss such as a fire, tornado, or burglary, homeowners insurance can pay for damages to the home, as well as for costs to repair or replace contents. If you are unable to live in your home as a result of damages, homeowners insurance can cover additional living expenses for a period of time while your home is being repaired. Homeowners insurance can also protect you from loss if someone is injured or their personal belongings are damaged while on your property.
Your Insurance company will be required to provide proof of insurance in time for your closing.
At your closing, you’ll go through all the final steps of securing your new loan. The most important thing to know is that all closing costs must be paid in full at this time. Make sure you work closely with your attorney and any me to find out exactly how much you’ll have to pay at closing. At this juncture, your mortgage professional should work closely with you to make sure no last-second surprises affect your closing.
Previous posts in this “Applying For Your Loan” series: