The Home Purchase Process Part 3: Closing your home purchase

This is part three of a three-part series on purchasing a home. Explore Part 1: Escrow and earnest money and Part 2: Contingency clauses and reports.

As always, the lending team at Fremont Bank is happy to provide assistance and answer any questions.

The offer you made on a home was accepted, and the inspection went well. Now, you’re nearing your closing date. 

The last big step before moving into your new home is closing. Learn more about what closing on a home means, what to expect, and how to make the process as smooth as possible.

What is closing?

While every state has a different process, closing your mortgage is the last part of the transaction between the home buyer and the home seller. At closing, the buyer receives the deed or property title. In return, the seller receives the agreed payment. It is made official by the buyer and seller reviewing and signing final documents that complete the process. Sometimes, closing is called settlement or account settlement. 

Closing can take place at a title company or escrow office. Most title companies commonly use a mobile notary facilitated by the company for signings at the escrow office or a place of the buyer’s choosing. Notaries are publicly commissioned officials whose purpose is to verify your identity and witness the signing of legal documents, such as loan documents.

Why is it called closing – and what’s an escrow account?

It’s called closing because an escrow account is used to complete the purchase, and in finalizing the transaction, that account is closed. An escrow account protects you as a buyer and the seller during the process. As steps in the closing process happen, a third party – an escrow agent – manages an account and releases funds for buyers and sellers. 

Please note: There is another type of escrow account. If you have elected to have taxes and insurance premiums included in your monthly payments, the bank sets up an escrow account, also referred to as an impound account, to hold these premium and property tax payments for future payment to the county and for hazard insurance premiums due during the life of the mortgage. 

You will be billed by the county for all supplemental taxes due. These taxes will not be collected as part of the monthly impounds for property taxes. You will be responsible for payment of these supplemental taxes when due. Your mortgage servicer can further explain this process if you should have questions after your purchase is complete.

What is a title company, and what services do they provide?

Because a mortgage transaction is typically a large financial transaction that involves multiple parties (buyer, seller, lender, and real estate agents) in addition to a piece of collateral (the home), a neutral third party helps facilitate the transaction to make sure everything is handled correctly and all parties’ needs are met. 

This is where the title company provides several important services as part of a purchase:

1. Provide title search to make sure the sellers are the true and correct owners of the home and that no one else has filed a lien (or a claim) to the property. This protects the buyer and lender from tax liens or mechanic’s liens (unpaid invoices by contractors working on the home) from becoming a surprise later.
2. Provide title insurance, two policies that come standard for a home purchase. The first is required and covers the lender in the event something was missed to make sure payments do not have to come out of pocket. The second is optional but highly recommended and standard to most transactions. This is called the owner’s title policy and protects the buyer’s equity position in the event something was missed in the title search.
   • If you are looking at our no closing cost option, Fremont Bank covers the lender’s title policy but not the owner’s policy.
3. Act as a neutral third party for finances. Once the contract is completed, the buyer will need to wire their earnest money deposit to title, which will hold the funds in an escrow account specific to the transaction. As other funds come in from the lender and sometimes the seller, this money is accounted for and set aside for when the home ownership transfers. In this way, the title company acts as the clearinghouse for all the money
4. Manage the closing appointment. The title company receives the loan docs from the lender and schedules time to sign everything. They will be able to help explain any last-minute questions and make sure everything is properly notarized and submitted back to the lender so the loan proceeds can be wired.
5. Record the change in ownership. This change is documented through the county.
6. Disburse the funds to all parties to consummate the transaction.

Three primary documents signed at closing

Closing Disclosure

This lists all the costs related to the purchase. These costs include real estate taxes, loan fees, monthly payments, loan terms, etc. 

Promissory Note

This document is related to your loan. It details the amount, interest rate, term length, and payment due date. A promissory note also includes potential penalties for nonpayment. 

Mortgage

The mortgage document, also called a deed of trust, promises the property being purchased as security for the loan. 

These three documents are sent by your lender to the title company, who typically facilitates the signing of your closing documents with a local notary.

What are the steps to close on a home purchase?

You must review and acknowledge your closing disclosure before the bank prepares the closing document package. Be sure to review everything carefully: Is your name spelled correctly? Is the address correct? Are the loan term, interest rate, and loan amount accurate? Report any errors to your lender immediately for corrections so as not to delay closing. 

To prepare for the closing appointment, you will want to:

1. Notify your bank and prepare the wire for the down payment and closing costs. Wire funds to title a day or two before the closing appointment to ensure transactions complete in time.
2. If you are receiving a monetary gift from someone for your down payment or as part of your down payment funds, notify the gifter and provide the wire instructions for your escrow account. Wiring directly to title streamlines things significantly by reducing the need for an additional paper trail from your donor.
3. Notify your insurance company of your closing date so the insurance policy can be bound. Keep in mind, policies are typically paid ahead.
4. Make sure any funds wired were sent from the accounts on your application and previously disclosed to processing. If funds come from another account, this may look to your lender like it’s a gift, which may require additional documentation to qualify.

During the appointment, the title company and notary help navigate the closing process as you sign paperwork, wire funds, and record the change of ownership.

Here’s what happens next:

1. The completed closing package is sent directly to the escrow officer for review. The officer then schedules the loan signing.
2. After the loan signing, the escrow officer sends the original signed loan package and the signed seller instructions to the bank for review.
3. Upon review of the signed loan documents, a list of outstanding conditions is sent to escrow to collect any other documents/requirements needed to fund the loan. Be advised that this includes proof of hazard insurance with acceptable coverage in place at the time the loan funds.
4. Once all conditions have been met, the loan proceeds are sent to escrow by wire transfer. Remember, all funds to close must be approved by the bank/lender and supported by paper trail documents.
5. Escrow records the deed of trust and disburses funds to the seller and third parties.
6. Keys to the property are released to the borrower.

The first payment due date and the monthly principal and interest payment are shown on the first page of the note. A temporary payment coupon will be provided in the funding package.

With that, congratulations, you now own your home! Homeownership is one of the most important ways to build wealth and is well worth the investment.

Beyond finding a place you love, buying a home includes many steps that include big financial decisions. There is a ton of information to process, so having a knowledgeable, service-oriented lending team on your side is essential.

We’re ready to help.

Financing a purchase with Fremont Bank

If you have chosen to have monthly payments automatically debited and have provided your bank account information, the Fremont Bank Loan Servicing department will set up autopay once the loan has been funded.

If the loan is one of our No Closing Cost products, an Interim Interest Notice will be sent with the funding package. This is the interest due on the new loan between the funding date of the loan to the end of the month in which the loan funds. This amount will be due and payable by the 10th of the following month.

What could cause a delay in funding your purchase?

Credit changes

Generating any new or additional credit during the loan process – from application to the loan funding – can trigger a delay. Before closing, lenders will check your credit. Significant changes or new credit applications since a preapproval can impact the final approval process. 

Employment changes

Let your lender know if you experience a change of employment from application to funding. Your lender will verbally verify your current work and needs your employer to respond. A lack of response can delay funding.

The lender/bank will verbally verify all current employment before funding the loan. Your employer’s timely response to the verification helps ensure funding will be completed on time.

Wherever you are in your purchasing journey, the team at Fremont Bank is ready to help.