What Happens After Loan Disclosures Are Signed?

Signing loan disclosures marks a significant milestone in the loan application journey, signaling a shift from initial inquiry to the final stages of securing financing. This step indicates that the borrower has received a detailed overview of the proposed loan terms and conditions. While seemingly a concluding action, it actually initiates a series of internal processes and preparations that unfold before the loan is officially finalized, leading towards the eventual closing of the loan.

Lender’s Review and Processing

After initial loan disclosures are signed, the lender undertakes a series of internal reviews and processes to verify information and finalize the loan. Underwriting assesses the borrower’s creditworthiness, income stability, assets, and debt-to-income ratio. This thorough evaluation ensures the borrower meets the lender’s criteria and can reasonably repay the loan. Underwriters scrutinize documents like bank statements, pay stubs, and tax returns to confirm financial standing.

A property appraisal determines the current market value of the collateral. An independent appraiser conducts this assessment, providing an unbiased opinion of value to the lender. The appraisal report helps confirm that the loan amount is appropriate for the property’s value, protecting the lender’s investment.

Lenders also conduct a comprehensive title search and arrange for title insurance. The title search reviews public records to confirm clear ownership of the property and identify any existing liens or disputes. Title insurance protects both the lender and the borrower against future claims or defects in the property’s title.

The lender performs various last-minute verifications to ensure continued eligibility and accuracy of information. This can include re-verifying employment, checking bank balances, or reviewing any recent credit inquiries. These checks confirm that the borrower’s financial situation has not significantly changed since the initial application.

Borrower’s Final Preparations

As the lender progresses with its internal reviews, the borrower also has specific actions and documents to prepare. Lenders may have certain conditions that need to be satisfied before final approval, such as providing updated pay stubs or bank statements. Promptly responding to these requests for information helps keep the loan process on schedule.

Arranging for homeowner’s insurance, also known as hazard insurance, is another important responsibility for the borrower. Lenders require proof of coverage to protect their investment in the property against unforeseen events like fire or natural disasters. Borrowers typically need to secure an insurance policy and provide proof of coverage to the lender before closing.

Borrowers should avoid making significant financial changes during this period, as these could jeopardize loan approval. Taking on new debt, such as purchasing a new car or opening new credit card accounts, can negatively impact the debt-to-income ratio and credit score. Changing jobs or making large purchases that deplete cash reserves can also raise concerns for the lender.

Final Loan Documentation and Closing Disclosure

Before loan closing, the Closing Disclosure (CD) is issued. This standardized five-page form details the final terms and costs of the mortgage loan, including the interest rate, estimated monthly payments, and all associated closing costs and fees.

Federal regulations require the lender to provide the borrower with the Closing Disclosure at least three business days before the scheduled loan closing. This “three-day rule” allows the borrower sufficient time to review the document thoroughly. It provides an opportunity to compare the final terms against the initial Loan Estimate, identify any discrepancies, and ask questions before committing to the loan.

Borrowers should carefully examine sections such as the loan amount, interest rate, and itemized closing costs, including origination fees, appraisal fees, and title insurance premiums.

The Loan Closing

The loan closing represents the culmination of the entire process, where all parties formally finalize the real estate transaction. Typically present at the closing are the borrower(s), a closing agent (often from a title company or an attorney’s office), and sometimes real estate agents or a lender’s representative. The closing agent oversees the signing of numerous legal documents and facilitates the exchange of funds.

During the closing, the borrower will sign several documents that legally bind them to the loan and transfer property ownership. These include the promissory note, which is the borrower’s promise to repay the loan, detailing the loan amount, interest rate, and payment schedule. Another document is the mortgage or deed of trust, which pledges the property as collateral for the loan.

The “cash to close” amount, as indicated on the Closing Disclosure, is also due at this time. These funds cover down payment, closing costs, and prepaid expenses such as property taxes and insurance premiums. Typically, these funds are remitted via wire transfer or certified check to the closing agent. The closing agent ensures all funds are properly collected and disbursed to the appropriate parties, including the seller, real estate agents, and service providers.

Following the signing of documents, the loan enters the funding stage, where the lender releases the loan proceeds to the title company or escrow agent. This transfer of funds can happen on the same day as closing for purchases, but for refinances, a mandatory three-day waiting period may apply before funds are disbursed. Once funded and the deed is recorded, the property officially transfers to the buyer.