It’s a great feeling as a soldier – to get preapproved in a crazy real estate market. After finding the right place and settling on a price, closing on your home can seem daunting. Sometimes, it feels like a sprint to the finish line, and the events can often become very confusing and frustrating – even for those with home-buying experience. However, it is essential that you know how to work with the lenders and understand the financial documentation to ensure there are no problems with your bottom line at close.
American Land and Title Association (ALTA)
American Land and Title Association (ALTA) is an association of title companies. ALTA helps protect home buyers, sellers and other real estate professionals with their comprehensive guidelines and forms. Generally, you will receive an ALTA Settlement Statement at the close, providing the bottom-line financials at the closing through organizing the property selling process.
ALTA Settlement Statements may appear confusing at first, but do not worry, they are much simpler than they appear. The ALTA Settlement Statement provides a thorough breakdown of what charges apply and to which party. This helps both the buyer and the seller better understand how the final costs have been reached and why each of you owes the specific fees.
The trick is you may never see an ALTA Settlement Statement until the close. Instead, you may see documents from your lender like a Closing Disclosure or Uniform Residential Loan Application or a Cash to Close document.
Know Your Rights
According to the United States government and the Consumer Financial Protection Bureau, the lender is required to give you the Closing Disclosure at least three business days before you close on the mortgage loan. But what if you get the Closing Disclosure one or two days in advance of the close? The three-day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate, previously received from the lender. The three days also gives you time to ask your lender any questions before you go to the closing table.
However, there are multiple problems with this procedure. First, your lender may tell you that the Closing Disclosure shows the amount of money needed for close, but they will often give a caveat saying the numbers may shift slightly based upon a half dozen different line items. This can be very frustrating because you are trying to make sure you understand the bottom line and have the appropriate loan value or personal funds available for the close. In some cases, you may be asked to provide additional cash at the close in advance and be told that a check will be cut back to you for any overage.
The second challenge is the variation in formatting of the different statements. This variation makes it difficult to do a line item match up. Some lines combined on ALTA Settlement Statement are not combined on the Closing Disclosure and vice versa.
Finally, you may arrive at the close and the Closing Disclosure numbers do not match the ALTA Settlement Statement. There will be enormous pressure to close at the appropriate date and time as you have a schedule to keep. You may have already arranged for household goods delivery or commercial delivery of new furniture and appliances based on your closure date. Your plans to return to work have been set. Therefore, you have an expectation of closing at the appropriate date and time.
Need a Good Professional
If you have a great lender and title company, they will explain in detail why the numbers have shifted. However, should these folks be anything less than professional, you may be left to your own knowledge to determine the monetary differences between the Closure Disclosure and the final ALTA Settlement Statement. Slow down and breath.
So how do you gain this knowledge in advance of your close? Your mortgage originator will have to discuss every single line item in the Closure Disclosure. If they try to go too fast or they do not want to take the time to demonstrate to you how the financials will work at close, then you should request to talk to another mortgage originator at that lending office. Find someone that will explain everything to you on the financials prior to close, to include a sample ALTA. This is their business and they perform this work every day. It is not your line of work, and they often forget you are a first-time home buyer. Slowing down and understanding every line from these documents will give you the proper baseline to be able to go to close and discern the final lending documents.
While at the close, any discrepancy between the Closure Disclosure and the ALTA should be thoroughly understood and resolved before you sign these final documents. The lender, the title company, and the seller all know that you are under tremendous pressure to close. Go fully armed and know your numbers before you get to the table. You will have the confidence for a great closing!