Don’t be caught off guard on closing day. Knowing your way around the paperwork will help you feel more confident about what you’re signing.
It’s no secret that there’s a lot of paperwork involved in buying a home. After you select a mortgage lender to pre-approve you, you’ll be asked to provide all your most private financial documents, detail your income and residence history, and sign a stack of disclosures to get your loan approved. Then you’ll sign yet another stack of documents at closing.
The settlement statement (aka “the HUD”)
- Real estate agent fees, which are commissions you might pay to the real estate agent as the buyer.
- Lender fees, including origination fees or “points;” any fees or credits for the rate you chose; and appraisal, credit report and other loan processing fees.
Prorated items like loan interest from the loan funding day to the end of that funding month, prepaying one year of homeowners insurance (which is required by lenders), and any required prepaid mortgage insurance.
Reserves deposited with the lender, which are only required if you’re setting up an “escrow” or “impound” account from which your lender will pay your insurance and property taxes. This is optional, and if you decline it, you won’t have to prepay these reserves at closing.
Title fees, which are assessed by the title/escrow company serving as settlement agent for your transaction. This section also includes the title insurance you’re required to purchase to protect yourself and your lender from any unwarranted third-party claims on your property.
Additional fees like contractors or pest inspections, or homeowners association move-in/move-out fees.
The promissory note (aka “the note”)
The security instrument (aka “the mortgage” or “the deed of trust”)
Owner-occupied. You must move into the property within 60 days of closing and live there as your primary residence for at least one year. Then you’re allowed to use it as a rental or a second home.
Second home. You can only use the property as a second home and aren’t allowed to rent the home.
Non-owner-occupied. You’re paying a higher rate for this loan, so you’re free to convert occupancy to owner-occupied or second home if and when you see fit.