Reviewing your closing documents is a vital step in the home-buying process. This final stage ensures that you fully understand the terms of your mortgage, the total cost of your loan, and any fees associated with the purchase. Overlooking details in these documents can lead to unexpected costs or misunderstandings, so careful review is essential to protect your financial interests.
Why Reviewing Closing Documents is Important
- Avoid Errors: Mistakes in the loan amount, interest rate, or fees can cost you significantly.
- Understand Terms: Knowing the details of your mortgage, including repayment schedules and penalties, helps you plan for the future.
- Ensure Accuracy: Verify that all negotiated terms, credits, and repairs are reflected accurately.
- Prevent Delays: Identifying and resolving discrepancies early prevents delays in the closing process.
Key Documents to Review
1. Loan Estimate
The loan estimate outlines the terms of your mortgage, including:
- Loan Amount – Verify it matches what you agreed to borrow.
- Interest Rate – Ensure the rate reflects the terms you locked in.
- Monthly Payments – Review how much you will pay each month.
- Closing Costs – Confirm estimated costs, including lender fees, title insurance, and taxes.
2. Closing Disclosure
The closing disclosure provides a final, detailed breakdown of your mortgage and closing costs. This document should be received at least three days before closing.
- Check for Changes – Compare the closing disclosure to the initial loan estimate. Address any discrepancies immediately.
- Total Loan Costs – Review all fees and confirm there are no unexpected additions.
- Escrow and Taxes – Verify how much is required for escrow, property taxes, and homeowners insurance.
3. Promissory Note
This document is your agreement to repay the loan. It includes:
- Loan Amount and Terms – Confirms the principal amount, interest rate, and repayment schedule.
- Late Payment Penalties – Understand any fees for missed or late payments.
- Prepayment Penalties – Determine if there are charges for paying off the loan early.
4. Mortgage or Deed of Trust
This secures the loan against your property.
- Verify Names and Property Address – Confirm all information is correct.
- Understand Foreclosure Terms – Review terms related to foreclosure in case of loan default.
5. Title Documents
Title documents confirm the legal ownership transfer.
- Title Insurance – Ensure title insurance protects against disputes over property ownership.
- Legal Descriptions – Confirm that the property description is accurate.
How to Review Closing Documents
- Start Early – Request closing documents as soon as they are available to allow ample review time.
- Compare Documents – Match the loan estimate to the closing disclosure and flag any inconsistencies.
- Ask Questions – Don’t hesitate to ask your lender or real estate agent about unclear terms or fees.
- Engage a Lawyer – For added protection, consider having a real estate attorney review the documents.
Common Errors to Watch For
- Incorrect Loan Amounts or Interest Rates
- Misspelled Names or Wrong Property Address
- Unexpected Fees or Charges
- Missing Seller Concessions or Credits
Conclusion
Reviewing your closing documents thoroughly is essential for a smooth and secure home-buying experience. By understanding each document, verifying key details, and addressing discrepancies promptly, you can confidently move forward with closing and take ownership of your new home. This attention to detail helps safeguard your investment and ensures peace of mind as you transition into homeownership.