I closed my mortgage refinance last month. I often hear the media saying that people who signed up for an adjustable rate mortgage (ARM) didn’t know their interest rate can adjust. Well, make no more excuses. I’m going to list all the documents I signed at closing and explain what they mean. This way anybody can look up in Google and be prepared before they go into closing.
Before I continue, let me say these documents are what I signed for my loan. The required documents may vary depending on the lender and the laws and customs of the state where you live.
1. Promissory Note. This is your promise to pay. The note clearly spells out your loan terms, including
- the principal borrowed
- the interest rate
- the date of the first and last payment
- the monthly payment amount
- how late charges are assessed
- whether there is any prepayment penalty
If you only read one document at closing, this is it. Read it carefully before you sign. Double check and verify the terms are what you think you were offered.
2. Security Instrument. Depending on where you live, this document is called a Mortgage, a Deed of Trust, or some other name. There are some legal differences between a mortgage and a deed of trust, but you really don’t have a choice because it’s purely a function of where you live. This document basically says you are using your property as the collateral for your loan. It spells out in details your rights and obligations, which include:
- make payment on time
- occupy the property as primary residence
- keep insurance
- pay taxes
- keep the property in good shape
- do not store explosives
- etc. etc.
This document gives the lender the right to take your home away if you don’t comply.
3. HUD-1 Settlement Statement. This is a standard form by U.S. Department of Housing and Urban Development. It shows you the closing costs and various other charges related to finalizing the mortgage.
4. Truth In Lending Disclosure Statement. This form shows an APR and the total finance charge through the life of the loan. If you are getting an Adjustable Rate Mortgage (ARM), you will see the "Variable Rate Feature" box checked here. There are also two checkboxes for whether or not the loan has a prepayment penalty. Pay attention to those checkboxes.
The four documents above are the most important ones. These other documents below are mostly formality.
5. Escrow Instructions. This document contains authorizations from you to the closing agent on how they should distribute the funds. The closing agent will then act on your behalf to pay off your old loan and record your new loan.
6. Notice of Rights to Cancel. This is telling you that you have 3 days after signing the loan documents to change your mind and back out of the loan.
7. Signature/Name Affidavit. Here you confirm your name and signature.
8. Errors and Omissions Compliance Agreement. Here you agree to cooperate with the lender if they have to correct clerical errors.
9. Escrow Waiver. If your lender lets you pay your homeowner’s insurance and property tax on your own, as opposed to include it with your mortgage payment, you sign this document and promise to pay insurance and tax before the bills are due.
10. Acknowledgement of Disclosures. They want you to acknowledge that you received a bunch of notices and disclosures.
11. Form 4506-T. You give the lender permission to request your tax return information from the IRS so they can verify your income.
12. Loan Servicing Disclosure. This document tells you whether the lender typically retains the servicing of the loans it makes or transfers the servicing to someone else. Servicing means accepting payments from you and providing you tax form after year-end. If servicing is transferred, you will receive a notice in the mail telling you where to send your payments.
13. Loan Application. For some strange reason, they want you to sign your loan application again.
That’s it. Although there are a lot of documents, if you pay attention to the important ones, it’s pretty clear what kind of deal you are getting into. If you don’t understand what a particular document means, ask the closing agent.
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T Krent says
I have refinanced my mortgage loan several times over the past 15 years to get better financing or to take cash out during some difficult financial circumstances. How many of the Closing documents from my old refinanced loans do I need to keep and for how long after I have refinanced? I assume I will keep everything from the active loan and the top 4 on your list of mortgage documents list. What paperwork can I get rid of from the previous loans?
T.
Harry Sit says
For the paid off loans, I’m keeping the note and the security instrument, plus the lien release (“reconveyance”) document the previous lender records after the payoff.
Liam says
Did you really get your original promissory note back? That’s quite unusual as the banks can monetize it or keep as a deposit for fractional reserves, so they usually keep it and all the profit derived from it, and issue and record a satisfaction notice to the borrower that pays the note off.
Harry Sit says
I was referring to the copy of the note I received when I originally signed. In my several refinances, at least one servicer returned my original singed promissory note stamped as paid. The other servicers didn’t return it.
Roxanne says
Is the lender required to provide the previous lender’s payoff document with the closing docs? Our new lender has given us different figures 3 different times as to what the payoff amount is. I also received a different amount upon contacting my old bank.
Harry Sit says
Roxanne – No. The payoff doesn’t have to be accurate to the penny. If you pay too much to your previous lender, which is typical when the payoff includes a few extra days of interest, you will get a refund from the previous lender. Don’t worry.
Many lenders charge a fee to the tune of $30 every time you ask for a payoff statement. If you go overboard requesting the payoff document, you are just paying fees to your old bank unnecessarily.
Fran Dunovsky says
We’re going to refinance an investment property with the original bank our loan was with. They said there will be no closing costs or fees. When I asked how can this be I was told they are making their money by reselling the loan to a 3rd party. Does this seem fesible?
When signing the numerous documents there is never enough time to read through everything before signing. Do you have any suggestions on what to do in this situation? I’ve asked to have them email the documents prior to signing so we can get any questions out of the way but they may not do this! Is there anything we should pay particular attention to besides reviewing the settlement statement?
Harry says
Fran – No closing cost or fees is not a red flag by itself. It may or may not be desirable depending on the rate you get with and without closing cost and fees. I wrote many articles on refinance. Look for them under How To Refi.
Misti says
We are signing our closing paperwork for refinancing our house. I just accepted a new job but there will be two weeks in between my old employment and when I start my new job. Will this affect our closing paperwork?
Harry says
They will do a verbal verification of employment after you sign the papers. Make sure you are still employed at that time.
Chris says
We’re in the process of closing and were just told we didn’t sign the Uniform Residential Loan Application which I was pretty sure we had. The documents we were asked to sign are the initial Uniform Residential Loan Application which lists a different interest rate and loan amount. We are being told it’s required that we sign these. I was curious why the closing company would require that we sign these old forms?
Harry Sit says
Signing the application again is normal. It’s listed as #13 in the article. Ask your loan officer or broker why it shows a different interest rate and loan amount.
w.watts says
We are doing a FHA streamline refi. We are due to close sometime in March. When I told new lender I was making March payment to old lender he said not to pay it. He said I would bring payment to closing and give to new lender. This doesnt seem right. At closing they should have payoff amount which I assume would include any interest due. Your thoughts?
Kent says
I got a down payment assistant loan for 6600 and does not have to be payed back unless I sell or refinance house. I’m trying to refinance my house now for lower interest. The lender states that he can transfer that loan over to new loan but I don’t see it in loan amount on application can he transfer that loan over?
Tina Ure says
I am nearing completion (I think) of a refi for my home with LoanDepot. First, I would like to confirm that they are a reputable/legit lender (my concern was raised when one of the ‘requirements’ through their Portal asked for my Bank login info: username and password (!) which I ignored. eventually that requirement disappeared but it has me worried that a reputable company would ever even ask for that); second they have the closing document signing appointment for this Saturday at my home. Is that standard? I’m a single woman and don’t really want to reveal that I live alone in a rural area.
Harry Sit says
It’s a legit company. If you don’t want the signing to be at your home or on a Saturday, you can schedule it to a different place, such as at a public library, or on a different day when you can have someone else present.