The Documents

You will be asked to initial or sign a number of documents during the closing. Among the most important are:

Good Faith Estimate — A written estimate provided by the lender of all charges—including closing costs and pre-paid and escrowed items—you are likely to pay at closing. You should receive this within three days of submitting your loan application. You’ll want to compare your estimate with the HUD-1 (see below) before your closing date.

Note — A promissory note that states your intention to pay a specific sum of money at a specified rate of interest within a fixed period of time.

Deed of Trust (Mortgage) — A legal document that gives the lender the right to take possession of the property if the borrower fails to pay off the loan. In some states, this is known as a “deed of trust.”

Certificate of Occupancy — Issued by a local municipality stating that the home meets all building codes and is suitable for habitation. Relevant if you’re purchasing a newly built or renovated home.

HUD-1 — Also called the “settlement statement.” Provides an itemized breakdown of all costs and disbursements associated with the sale of the home. You are entitled to review this document a day before closing—compare it with your Good Faith Estimate and resolve any issues before settlement.

Final TILA statement — “Truth In Lending Act” statement that discloses the full cost of your mortgage and annual percentage rate (APR). It shows any modifications such as rates and points that may have been made since applying for the loan.

Closing Costs
 — These charges will vary widely from state to state and lender to lender, but will likely include:

Points — Money paid by a borrower to the lender in exchange for a lower interest rate. Each point equals 1% of the loan amount.

Mortgage Application Fees — Charged by the lender to cover the costs of processing a loan application. It’s sometimes paid up front at time of application; otherwise, it’s included in the closing costs.

Appraisal Fees — The cost of paying a professional to assess the fair market value of the property. Usually required as a condition of the loan.

Inspection Fees — The fees charged for home, pest and other inspections. Lenders sometimes require inspections to verify that the property is in good condition and will retain its collateral value.

Survey Fee — The charge for confirming the lot size and shape and to check for any encroachments.

Title Search Fee — Paid to your title company to verify that the home’s title is “in the clear,” (i.e., that there are no liens or outstanding claims on the property).

Title Insurance Premium — The lender’s policy covers only the lender and is required in most cases. A buyer’s policy is optional but highly recommended, and is usually very affordable if purchased at the same time as the lender’s policy.

Recording Fees — Charged by the local register of deeds to make the transfer of property a matter of public record.

Pre-paid Property Insurance — The first full year’s property insurance premium, paid in advance to the homeowners insurance company.

Pro-rata Property Taxes — An adjustment to ensure that both the seller and the buyer pay their share of the annual property tax, proportionate to the percentage of the year that each has ownership of the property.

Pro-rata Interest — An adjustment to cover the interest on the loan for the number of days until the first payment is due.