Real Estate Closing Documents: Overview & Description

Instructor: Racquel Fulton
After someone makes an offer on a home, how is the sale finalized? The sale of real estate is finalized when closing documents are signed. Learn about the different types of documents used to complete the sale of real estate.

What Are Closing Documents?

Lisa is purchasing her first home from Sean. Sean will sign a deed, which is a document that will transfer his rights over to Lisa. The deed is one of many documents needed to complete the sale of the home. Documents used to exchange money and rights to real estate are called closing documents. Closing documents are signed at the closing, also referred to as a settlement, it is the process of bringing a transaction to a close. Lets explore the most common types of closing documents.

Different Types of Closing Documents

Like most buyers, Lisa obtained a loan to purchase her home. A loan is money that is borrowed and must be repaid under specific terms and conditions. A loan to purchase real estate is called a mortgage. The provider of the mortgage is called a lender. At the time of the closing, a lender will require a homebuyer like Lisa to sign documents securing their rights to the property until the loan is paid back.

Join us as we sit in on Lisa's closing and review the documents along with her.

Mortgage Loan Documents

1003 Uniform Residential Loan Application

When Lisa applied for a mortgage loan, the lender was authorized to obtain a copy of her credit report. The report lists outstanding liabilities such as a car loan and credit cards balances. Her credit report along with the value of any assets she owns, work history and income are documented on the loan application.

Promissory Note

Promissory means that a promise is being made and note is a financial term referencing money. The promissory note, often simply called the note, is the borrower's agreement to repay the loan. The dollar amount of the loan, interest rate charged for the loan and monthly mortgage payment excluding amounts needed to pay property taxes and insurance are stated on the note.

Mortgage or Deed of Trust

In a court of law, the mortgage document is called a security instrument because it is used to secure a lender's right to a property.

In some states like Arizona and California, a mortgage is called a deed of trust. A trust is an account to hold money, valuables, and legal documents. The deed to a property is placed in trust until the loan is repaid.

The mortgage and deed of trust is an agreement between the person obtaining the loan and the lender. In this instance, Lisa is the mortgagee and the lender is the mortgagor. Agreements within a mortgage document are called covenants. There are uniform and non-uniform covenants. Uniform covenants include keeping the property in a good state of repair and paying property taxes. Non-uniform covenants are based upon the type of property and local rules and regulations.

Riders

A rider is a legal document attached to another legal document adding additional terms and conditions.

For example: If Lisa were purchasing a condo, her note and mortgage would include a condominium rider. The rider would state additional terms and covenants specific to that type of property. There are riders for all types of loans and properties, including:

  • Rental homes - A property that is not occupied by the owner.
  • Prepayment penalty - A penalty that will be charged by the lender if the loan is repaid early.
  • Balloon Payment - A loan that requires the entire loan balance due on a specific date.

Truth In Lending

The truth in lending, also called the TIL, discloses the true cost of the loan. The annual percentage rate, referred to as the APR, is stated and differs from the interest rate on the note. The TIL factors in the cost of the loan including finance charges.

Closing Disclosure

The good faith estimate (GFE) was previously a single document providing the borrower with an estimate of their closing costs and a breakdown of loan terms. Due to changes in federal regulation, the GFE has been replaced by a document called the closing disclosure. The closing disclosure provides additional clarity within the settlement statement by itemizing all of the fees charged to the buyer to purchase the home. This includes the loan amount, finance charges and settlement fees, such as insurance premiums, mortgage and deed recording fees.

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