Loan Closing Process Overview

Loan Closing Process

• Loan approval triggers the closing phase. Some companies have dedicated closing specialists; others use the same staff throughout. Brokers may hand off applications to the lender after approval.
• The Closing Disclosure (CD) is issued soon after approval. It's the final disclosure of transaction details and fees, replacing the Loan Estimate (LE).
• Borrowers must receive the CD for review at least 3 business days before consummation, when the borrower's contractual obligation begins. Business days exclude weekends and public holidays.
• A revised Loan Estimate (LE) cannot be issued after the CD. At least one day must elapse between the last LE and the CD.
• Sellers also receive a CD.
• If changes occur, a revised CD must be provided before or at closing.
• A 3-day waiting period is required if the APR rises by a point, or if the loan type changes (e.g., fixed to ARM), or if a prepayment penalty is added.

Settlement Agent Role

• Settlement agents (typically title insurance companies or attorneys), work with the lender throughout processing, regarding title reports, fees, etc.
• After final approval, closing instructions are issued.
• The settlement agent gathers all required mortgage and related documents.
• They calculate prorations (e.g., taxes), adjustments, and fees affecting each party
• Prorated expenses are determined before the CD is issued and affect the final closing costs.
• Agents search public records for title insurance.
• The Title Commitment (for the lender's review) outlines the title insurance company's obligations and exceptions.
• Exceptions (like liens, easements, leases, previous mortgages, restrictive covenants, mineral rights, encroachments), that need to be cleared by endorsements, waivers, or payments.
• Unacceptable title exceptions (e.g., unresolved claims, significant encroachments, or recorded leases) may prevent a transaction from closing, until addressed.
• Mortgages paid from the loan proceeds are shown on the Commitment but not on the final title policy.
• Title Agents handle resolution of potential title issues.

Closing Procedures

• Closing methods vary regionally. Some involve a single "round-table" meeting or multiple "escrow" meetings.
• Borrowers provide closing funds (in a certified check or escrow account depending on the method). .
• Funds are disbursed based on the CD and closing instructions.
• Documents like deeds, mortgages, and reconveyances are recorded.
• Ensuring the first mortgage is properly recorded (in priority, or subordinating any secondary mortgages).
• Purchase money seconds (piggyback) second mortgages, require special attention to the recording sequence
• Title Insurance Policy can be delivered to the lender, optionally prior, or after closing.

Insurance Considerations

• Title insurance protects lenders against title issues.
• Owner's title insurance, an option to cover the borrower.