How It Works: Closing Your Loan

Congratulations, you made it through loan processing and are ready to close your loan!

At this point the loan file has already been submitted for final approval.  Basically, the loan officer, processor, underwriter and closing team have given it one last look-over to make sure all the i’s are dotted and t’s are crossed.  

Then the initial Closing Disclosure will be prepared.  This document is very similar to the Loan Estimate you received at the beginning of the process, but has now been updated with all of the final costs of the loan.  

You may be asking, why did that change? The simple answer is that there isn’t a way to know for certain what all of the loan costs will be at the beginning of the process.   - For instance, say you had been planning on closing near the end of the month, but the appraisal took a few extra days to complete, so you aren’t actually signing until the beginning of next month. This can affect how many months of property taxes and homeowners insurance are collected in your escrow account, along with what is referred to as prepaid interest.  

Since the first payment on your new mortgage won’t be due for several weeks, the lender must collect some of that interest before closing, like this:

$585,000 @ 5.0% = $79.56 interest per day.  If closing on the 10th of November, there are 20 days left in the month before the December payment accrues.  $79.56 x 20 days = $1,591.20 in interest due at closing. 

Unfortunately there isn’t a crystal ball that determines exactly what day a loan will close, so the Loan Estimate is meant to provide an approximation of the fees and costs.  Whereas the Closing Disclosure has the final numbers for everything.  

This document will most likely be sent to you to sign electronically through your email, in order to ensure it was delivered and the mandatory 3-day waiting period can begin.  This is important as it provides you, the borrower, the chance to go through all of the numbers yourself and make absolutely sure you are ok with the loan payment and fees that are being charged.  You can still back out of the loan at this point if you decide to, so it is a good idea to take this one last moment to review everything. 

Soon after the Closing Disclosure is signed, the actual loan closing will be scheduled.  This involves all borrowers going to the escrow company or attorney’s office to sign the final paperwork, though the use of a mobile notary service is becoming more popular in some areas. After the signing occurs, any funds due at closing for down payment and such will need to be wired to the appropriate office for disbursement.  

If you are buying a new home, you will typically receive the keys to the property at this point.  But if you are refinancing a current home, you will have an additional waiting period referred to as a 3-Day Right of Rescission.  Since your current mortgage will be paid off and closed, this extra time allows you an additional opportunity to make sure you feel comfortable with the new loan terms and payment before it becomes permanent. Then, the escrow company will handle transferring all of the funds to pay off either the seller of the home, or the existing mortgage loan, and record the paperwork necessary to start the new loan.  

After closing, the loan transitions into what is called Servicing.  Usually a few weeks after signing all the papers, you will receive a notice from your loan servicer, either in the mail or via email, prompting you to choose how you would like to make your monthly payments.  The notice will provide information about when your payments are due, the late penalty if you happen to miss a payment and the amount that will be set aside in your escrow account for your annual property taxes and insurance.  Hopefully your loan officer already explained that, though your principal and interest payment are set for the life of the loan (unless you opted for an adjustable rate mortgage) the property taxes and insurance typically fluctuate on an annual basis. These costs are not associated with the mortgage lender and instead are determined by your insurance provider and the local county government. In order to keep you informed, every year around the same time you closed on your loan, you will be receiving a notice showing any updates or changes to that escrow account. 

And that’s it for the mortgage loan process.  You started this journey by choosing a loan officer and getting prequalified.  You made it through the loan application, processing, underwriting and closing phases. And now you are ready to continue on your journey as a homeowner. Thanks for joining us and be sure to check out our other content on things like refinances and a breakdown of what happens during an appraisal inspection. 

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Loan processing, Closing a loan, Closing Disclosure, Loan costs, Prepaid interest, Mortgage payment, Escrow account, Loan servicing, Property taxes, Homeowners insurance, Refinancing, Adjustable rate mortgage, Loan application, Underwriting, Appraisal inspection, Mobile notary service, 3-Day Right of Rescission, Loan disbursement, Loan servicer, Annual escrow account update