Funding/Closing Day

Today I’m going to be talking about closing, and specifically, what the timeline looks like about a week before the actual closing day. I’m going to talk about what forms you’ll sign, with whom you’ll be meeting, and generally what takes place right up to the final moment of you owning your new house.

This is an interesting part of the entire process because different parties that have been working somewhat separately up to this point, suddenly have to come together and make a lot of things happen really quickly, so it does take a lot of coordination, which is mostly orchestrated by the real estate agent.

It’s a lot of work to make sure everyone has all of the information and documents they need and one slip up can push out closing by sometimes up to a few days.

That being said, let’s get a few things out of the way at a high level and talk about who the individual parties are and what they will actually be doing.

You first have your real estate agent and their team. For me, I have a transaction coordinator that I work with, but I’m mostly a one man team. Sometimes your agents have lots of people working together, but I find things are easier if a single agent is your one point of contact. Just less likely to get wires crossed.

During this time the real estate agent will be double checking that all parties have their respective documents and that timelines are being held to. They will help you coordinate your final walkthrough which is the point in time that you will make sure the house is in the condition you expect it to be, mostly checking to make sure everything is moved out, that there is nothing still left that you expected to be removed, and of course, that nothing is damaged.

You want to make sure no holes were caused by getting that sofa out or scuffs on the floors from that table, as well as making sure nothing catastrophic has happened while the house has been vacant, like a pipe bursting or a roof leaking.

If the house is in the condition you expected, great! You sign off on it through a document called the Verification of Property Condition. If it is not, a separate renegotiation happens for any damage or the request to have additional items moved out.

It is worth noting that you may be non-contingent at this point, which means that you do not have the ability to back out of the sale completely, however, do not fret. You won’t have wired your final funds at this point, so this is a major bargaining chip that you can use to make sure the seller does whatever they need to do to get it to the condition the property needs to be in, and in the the case of catastrophic events, there are provisions in the Residential Purchase Agreement that can help you if the damage is very bad.

Most often though, a buyer walks through and sees that everything is as they expect it to be, and signs off on the verification of the property.

The next steps are with your lender. First you’ll lock in your loan, which is a term that basically describes you choosing the actual aspects of your loan and saying, yep! I’m good with these, this is what I want.

Most often this means choosing the final interest rate and any points you may be paying to lower that interest rate, or any credits you’ll be accepting for a higher interest rate.

You don’t want to lock too far from the closing date because interest rates can fluctuate and the loan lock doesn’t last for usually more than a week or so.

From here, the lender is stepping in and issuing what is called the CD or the Closing Disclosure. This is a final version of the nuts and bolts numbers of your actual loan, and they should look pretty similar to the initial loan disclosures you signed at the very beginning of the process.

At this point, however, they will include things like any credits from the seller, as well as final numbers of anything that has been an estimate up to this point like an appraisal fee or your home insurance.

These types of things are estimated up front, but, for example, now that you’ve shopped for home insurance and got your actual quote completed, you’ll have a real number as to your insurance cost and that will replace the estimate.

Usually this is something the buyer goes over and signs off on their own, but I always highly encourage you to reach out to your agent if you notice anything incorrect or have questions as to why certain fees are the way they are.

This isn’t your final final chance to make corrections to different fees and closing costs, but it is very close, so this is where you will want to be very vocal about anything incorrect.

Now, lenders can prepare CDs at any time in the process, but since the fees they disclose are so heavily regulated, most lenders have a few checks in place before a CD can be sent:

First, the Loan is at least conditionally approved and in underwriting.

Then they must make sure the Appraisal is in and any value issues are addressed

Also, they check that Insurance is in, or home is confirmed to be insurable

Finally, the Lender has collected invoices for any loan-related third party fees, such as credit report or HOA fees

Many times buyers hear about the “3 day waiting period” in regards to the CD and want to know what that means.

Borrowers cannot sign loan documents until three business days have passed from the date of the CD acknowledgment or signing, according to government regulations laid out in procedures governed by Truth in Lending and Real Estate Settlement Procedures Act.

If any loan-related fees are added after CD, a new CD may need to be issued, potentially starting a new waiting period. This is why most lenders do not issue CDs until they know what all of the fees or closing costs will be with relative certainty.

Because of this, getting the CD signed about a week in advance of the estimated closing date is very important to making sure all other aspects stay on track.

You will also at this point be sending in your final funds, which will be calculated by escrow. This amount is your down payment plus your closing costs minus your earnest money deposit.

Now remember your closing costs include items that you have to pay as well as any credits from the seller or the lender, which is why credits towards closing essentially function as cash in hand at the close of escrow.

This is done by a wire transfer in the same exact way you did your earnest money deposit.

After that 3 day waiting period from the closing disclosure, the lender will be drafting and sending final loan documents This is a behemoth of upwards of 100 pages of paperwork that need to be correct before sending to your escrow officer for signing.

Because your escrow officer is the one in charge of all of the money coming from various parties up until closing, chances are your escrow officer will go back and forth with the lender to make sure that all aspects of these loan documents are correct so that the escrow officer can balance all of the money coming in for the actual funding.

Remember, two major sources of money are coming in, your final funds which is the the down payment and closing costs minus your earnest money deposit which is already in escrow, and the lender’s funds, which is whatever percentage of the purchase price your lender committed to lending on the property.

For example, if you put 20% down, the amount from the lender will be 80% of the purchase price.

Many people wonder how the process of funding the loan and recording works. They’ve heard these terms but don’t know what they actually mean and what the process is.

In almost every instance the loan will fund on the day before recording, and the recording is the actual transfer of ownership. It’s when you know for sure that you can get keys!

But funding is basically when escrow confirms that all the money is there and accounted for, meaning your final funds and the lenders funds.

See the escrow is paid to be the neutral third party that gathers all the money and disperses it all properly. Only once everything is in and accounted for can they clear the file to close the following day.

With that being said, let’s talk about what happens when the loan funds. You will be scheduling an in person meeting with your escrow officer that will be your final signing. This is a process that can take awhile, so I always advise clients to budget about an hour to an hour and a half to sign everything.

Always bring a form of ID, two to be safe, because there are multiple signatures that require a notary. In almost every instance your escrow officer will either be a notary or have a notary in house that will do this for you.

Here you will sign the Settlement Statement that lists all costs related to the home sale. You will sign the Mortgage note stating your promise to repay the loan. And you will sign the Mortgage or deed of trust securing the mortgage note.

There may be other things you sign like confirmation of home warranty, home insurance, and potentially the 9A report, but the ones I just mentioned are the big important ones.

The escrow officer will walk you through everything, answering questions, advising on anything you may be confused about, and generally telling you to sign here, initial here, etcetera.

I will add that I have had a client recently have a mobile notary come to their house to do the document signing, and I’ve even heard of mobile notaries coming to someone’s place of work, but always make sure that the notary is one familiar with loan documents...you don’t want a random notary messing something up and delaying closing!

The entirety of these documents are sent to the lender, who will review them and authorize the wire transfer of their funds. If your funds are already in escrow, then escrow can balance and call the loan funded.

From here, all of these documents will be delivered to the title company because the title company is the party that actually handles the recording of the grand deed you signed as the official transfer of title to the property. They take that big old packet you signed, take what they need, and handle the recording the following day.

Ok we’ve made it to recording day! In Los Angeles, the county recorder’s office is handled by a lottery system. You could close as early as 9 AM or as late as 3 or 4 in the afternoon. Generally speaking, if you are all set to record the day before, there really is nothing that can prevent you from closing the following day, rather, it's just a matter of what time in the day you record.

You will get an official notice of recording from the title officer (or from your escrow officer who has been informed of the recording by the title officer), and that, my friends, is when you can finally officially celebrate. That moment is the time when you are now the new legal owner of the property!

Now I do want to go over a few little outstanding things about the very end there. First of all, the close of escrow date is just an estimate.

There are many things that can go wrong during this process that involve delays, and because of the legal red tape surrounding a mortgage loan, especially as it relates to the government. Even more so, at this time when interest rates are low, mortgage companies being swamped with new loans as well as refinances is and understatement to say the least.

Human error or work volume can cause the close of escrow date to push and though we all try to do our best to prevent that, it can happen and it does happen and everyone really just has to be ok with that.

Finally an important note: Ideally you want to have your close of escrow date Thursday or earlier in the week. That is because if your close of escrow date is Friday and you have to push, your close of escrow date now becomes the following Tuesday.

What? That doesn't make any sense, that's four whole days later? Why would it be that much longer?

That is because of this: when your loan funds, you are calculated to begin interest payments which show up as prepaid interest on your settlement statement.

But you don’t actually own the house until recording and the county recorder's office isn’t open over the weekend.

So in theory if you funded on Friday and closed on Monday, you would be paying interest over the entire weekend on a house you don’t legally own. And who wants to do that? Therefore, if a property is scheduled to close on a Friday and has to push, you instead fund Monday and close Tuesday.

As you can see, there are a lot of moving pieces that have to come together at the very end of this process that take a lot of effort to coordinate.

Imagine a scenario where one buyer or one seller is out of state? Or out of the country Now you’ve got documents that are being notarized and overnighted from various places, and that adds another layer of complexity.

I can’t stress this enough, this is why it is important to have a great real estate agent that can help throughout this process and make sure the other parties you work with are excellent if you are the one that gets the opportunity to select them, or doing their job and staying on track if you didn’t.

Whew that’s a lot of information right? I’ll admit it myself, closing is a lot happening at once. But the other side is a big sigh of relief and keys to your new home.

I hope this information is helpful to you, and I’ll say this, I really do love helping people through this process so if you or someone you know is interested in purchasing their first home, please don’t hesitate to reach out, I’d love to chat and answer any question they have. Thanks for reading!