At last, most likely several weeks after your offer to buy a home was accepted by the seller, you are preparing for the closing day. This involves you paying for the property, the lender (assuming you have one) funding your loan for a portion of that payment, and the seller transferring title — all of which are further described in the article, “Home Buyers: What Happens at the Closing.” But the most time-consuming part of the closing involves your reviewing and/or signing the various documents required to bring this about.
This article will describe those documents and provide tips on what you should look for -- or watch out for -- in your review.
Most of the documents related to transfer of ownership of the property must be signed by the seller and delivered to you, the buyer. It’s important to review these for accuracy and completeness. With many state and local variations, the main purchase documents in your home purchase are likely to include:
The loan documents are prepared by your lender or a servicing agent for your lender. How many documents you have to sign and what’s in them will depend on the lender and the type of loan you chose. The typical loan documents are:
Various other disclosures and agreements may be included in the loan package. In the compliance agreement, you agree to cooperate if the lender needs to fix any mistakes in the loan documents. IRS forms W-9 and 4506 allow your lender to report your mortgage interest and obtain copies of your tax returns. Servicing disclosures tell you if the lender is going to use a servicer to collect your payments, or whether the lender intends to sell your loan to another lender or an investor, and where to send your payments. Tax and insurance escrow forms allow the lender to charge and hold fund to pay real property taxes and insurance premiums on your behalf.
The lender may also ask you to sign affidavits certifying that you are going to occupy the home as your primary residence, and confirming your legal name and any other name you may use on accounts and legal documents.
Just when you think you are finished reviewing and signing documents, the title company and escrowee will give you their documents.
The main title document is the title insurance commitment (the “Commitment”) showing the party in title (who owns the house), hopefully the seller. It will also show all of the liens or other clouds on title. If you have one, your attorney will review the Commitment to make sure that title is in the condition promised in the contract and otherwise acceptable under local law and custom. If you are relying on an escrow company, it will review the Commitment to make sure title complies with the conditions stated in the escrow instructions created to satisfy the lender’s requirements. If title is not acceptable, the seller may have to pay off additional liens, or obtain additional signatures. Unexpected title issues could halt or delay your closing.
CAUTION: Some title issues can be very complex. If your seller does not have an attorney, or if local custom dictates, you may have to do more to ensure title will be good in time for the closing. If neither party has an attorney, you may wish to contact the title company well prior to the closing to obtain the Commitment, and review it with a title underwriter.
The title company will ask you to sign its customary closing documents. This will include an ALTA statement, which is a one-page affidavit very similar to the seller’s affidavit of title; a judgment affidavit, where you list your recent judgments, divorces, or bankruptcies; a compliance agreement, in which you agree to cooperate with the title company to correct any closing mistakes; and a disbursement agreement, allowing the title company, as escrowee, to disburse the loan proceeds. There may be additional disclosures informing you that an attorney is involved in the transaction, or that the lender has an affiliated businesses arrangement with the title company, or that the loan title insurance policy will not cover your interest as the buyer.