Consumers refinance their homes for many different reasons. One borrower may be looking to lower the interest rate and another may want to borrower against the home's equity. Since the borrower is not obligated on the loan until it is funded, it's a good idea to have a thorough understanding of the closing process. An accurate knowledge of the process could mean the difference between making good and bad family investments.
Clear to Close
After the underwriter has given final approval on a refinance application, a letter will be issued stating the borrower is clear to close. That statement gives the mortgage processor the authority to coordinate and schedule the closing. The processor will contact the closing agent and the borrower to schedule a location, time and date that is convenient for everyone. Once the closing date is set, the lender will prepare all the legal documents to be signed at closing. When the documents are prepared, the lender will forward them to the closing agent along with instructions for the closing. The instructions will state which debts are to be paid, who is to sign the documents, whether the borrower is required to bring anything else to closing and whether an escrow account for taxes is to be established at closing.
The closing agent is required to prepare the HUD-1 Settlement Statement. This statement is a breakdown of all the fees the borrower is being charged to close the loan. The statement will also have taxes, mortgages and debts being paid, and any other cash received by the borrower recorded on it. The borrower must come to the closing with proper government-issued identification and present it to the closing agent before signing any documents. The closing agent is required to explain the documents presented to the borrower for signing. The most important of all the documents are the HUD-1 Settlement Statement, The Truth in Lending statement, The Note and The Mortgage/Deed of Trust. The borrower has the right to receive a copy of these documents a few days before closing for a thorough review of all the information. Once all the documents have been signed, the closing agent will give the borrower a document titled Right to Rescind along with information on who to contact should they choose to exercise this right
Most borrowers would love to close and receive the funds the same day. However, unlike purchases, federal law requires all refinance loans to go through a three-day waiting period before final settlement on the loan. During those three days a borrower can change her mind and cancel the loan by simply forwarding to the closing agent a signed copy of the Right to Rescind document received at closing or a letter stating she's chosen to rescind the mortgage. If the borrower fails to contact the agent in writing within that 72-hour window, she will no longer be allowed to rescind on the mortgage. Once the 72-hour waiting period has passed, the closing agent will release the funds to the borrower. The agent is responsible for paying off the previous mortgage, taxes and any other debts the underwriter required to be paid at closing. The agent is also required to record the mortgage with the local county clerk's office and forward all the closing documents back to the lender after completion.
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