Closing Your Loan

This is the final step but of all the steps in the home-buying process, the closing is the one that often leads to the most questions. At OGI, we will take the time to guide you to a better understanding of how closing on your mortgage will work.

How the Home Loan Closing Process Works

Closing day is an exciting time because it’s the day you will finally get the keys to your new home. It can also be a hectic time since there will never be enough time and there will be lots of details to manage. The following information is a brief summary of how the home loan closing process works.

Closing Costs

Although they tend to vary by lender, closing costs range from 2% to 7% of the home’s purchase price, and will include three basic categories:

1. Prepaid Expenses: Prepaid expenses include homeowner’s insurance, mortgage insurance and, if applicable, the costs to set up an escrow account. An escrow account is when a lender will pay the annual insurance premiums and various taxes on the borrower’s behalf. The amount that goes into this account is based on the first year’s premiums; an additional amount may also be included to pay for future premiums. Because they vary based on the type of property and the time of the closing, prepaid expenses are difficult to determine. An escrow account may be required by the lender due to loan program requirements, but it is often set up by the buyer to better manage the home expenses.

2. Discount Points: A discount point is equal to 1% of the mortgage loan amount and actually helps reduce the loan’s interest rate. For example, depending on prevailing rates, a $100,000 mortgage might be obtained at 7.75% with 2 points, or at 8.25% with no points. Obtaining the lower interest rate would cut the mortgage payment by about $35 a month, but would require $2,000, or 2 points up front at closing.

3. Out-of-Pocket Expenses: Fees for appraisals, attorneys, credit reports, deed recording, tax services, home inspections and other miscellaneous expenses make up the out-of-pocket expenses.

Closing Day

Whether you are purchasing or refinancing a home, closing day can be a challenge. Everything moves fast and there are a lot of papers to sign. It’s a good idea to review what will happen ahead of time, so you can feel prepared and close your loan with confidence. When unsure, always ask questions.

Who Will Be at the Closing Table

The number of people who will attend your closing depends on many factors, including the state where the property is located, the property type and more. At the closing, in addition to you, the people attending may include:

1. Your attorney (if you have one),
2. The seller(s) (if you are buying a home),
3. The seller’s attorney (if they have one),
4. Both real estate professionals (yours and the seller’s, if you are buying a home),
5. The builder’s representative (if a brand-new home is involved),
6. The closing agent (which could be a representative from the title company or a real estate attorney),
7. A notary public.

Steps in the Closing Process

The closing can be held at the title company’s office, your lender’s office, a real estate attorney’s office or other agreed upon location, depending on the circumstances. Here’s a review of what will happen at closing: