Congratulations on closing your mortgage! You’ve completed one of the most significant financial transactions of your life. However, the journey doesn’t end at the closing table. Here’s what you can expect after closing on your mortgage:
1. Receiving Your Closing Documents
After closing, you will receive a stack of important documents, including:
Promissory Note: Your promise to repay the loan and a legally binding document.
Mortgage/Deed of Trust: Secures the promissory note and gives the lender the right to foreclose if you default.
Closing Disclosure: A detailed list of the final costs and payments.
2. Loan Servicing Transfer
It’s common for lenders to sell your loan to another company. If this happens:
Notification: Both your original lender and the new servicer must notify you.
New Payment Address: Pay close attention to where you send your payments to avoid late fees.
Welcome Package: You will receive a welcome package from the new servicer, which will include instructions on how to set up your online account. Through the online portal, you can:
– View your loan details and payment history.
– Make payments and set up automatic payments.
– Access tax and insurance information.
– Download statements and important documents such as:
– Monthly mortgage statements
– Annual tax and interest statements (e.g., Form 1098)
– Escrow analysis statements
– Insurance documents
– Contact customer service for assistance.
60-Day Consumer Protection: If your loan has been transferred, you have a 60-day grace period where no late fees will be assessed if you accidentally send your payment to the previous servicer. This consumer protection ensures a smooth transition and gives you time to adjust to the new payment address.
3. Understanding Your Payment Schedule
Your lender will provide a detailed schedule of your mortgage payments, which includes:
First Payment Date: Typically due the month after the closing month. Here are the details regarding late payments:
Within 15 Days of Due Date: You have a 15-day grace period after your payment due date during which you can pay without incurring a late fee.
15-30 Days After Due Date: If you pay your mortgage between 15 and 30 days after the due date, a late fee will be charged, but it will not be reported as a late payment on your credit report.
30+ Days After Due Date: Payments made 30 days or more after the due date will incur a late fee and will also be reported as a late payment on your credit report, which can negatively impact your credit score.
Monthly Payment Breakdown: Includes principal, interest, taxes, and insurance (PITI).
Automatic Payments: Setting up automatic payments can help you avoid late fees and ensure your credit remains in good standing. You can set this up through your lender’s online portal.
Extra Payments Towards Principal: You have the option to pay extra money each month towards your mortgage, and this money will go directly to reduce the principal amount, helping you pay off your mortgage faster and reducing the amount of interest you pay over the life of the loan.
Mortgage Recast: If you plan to make a substantial principal reduction payment, typically a minimum of $25,000 to $50,000, you have the option to request a mortgage recast from your servicer. A mortgage recast recalculates your monthly payments based on your new, lower principal balance, potentially reducing your monthly payment amount.
4. Escrow Account Adjustments
If you have an escrow account, it will be used to pay property taxes and insurance. You might experience:
Initial Funding: You contribute to this account at closing.
Annual Review: Your lender will review the account annually and adjust the payment as necessary. This annual review ensures your escrow account has enough funds to cover property taxes and insurance premiums.
Negative Escrow: It is common to have a negative escrow balance if not enough money is collected. This can result from increases in taxes and insurance premiums or from miscalculations by the lender. Clients should monitor their escrow account and, if necessary, put aside additional funds to cover any shortfalls.
5. Property Taxes and Homeowner’s Insurance
Property Taxes: You may receive a separate tax bill, but if you have an escrow account, your lender pays it on your behalf. If you don’t escrow, please make sure to pay your bill on time. Failure to pay your property taxes on time can result in penalties and, in extreme cases, a tax lien on your property.
Homeowner’s Insurance: Ensure your policy remains current. If it lapses, the lender can obtain insurance at a higher cost to you.
6. Private Mortgage Insurance (PMI)
If your down payment was less than 20%, you likely have PMI:
Removal of PMI: Once your equity reaches 20%, you can request PMI cancellation. Contact your lender to learn about the specific steps and requirements for PMI cancellation.
Equity-Based PMI Removal: If your property value increases significantly, you might be able to request PMI removal sooner. This option is available for conforming loans only, and you will need to provide a current appraisal to prove the increased value.
7. Record Keeping
Keep all mortgage-related documents for future reference, especially:
Closing Disclosure: Needed for tax purposes.
Mortgage Statements: Track your payments and balances. Keeping these documents is crucial for potential disputes or tax purposes.
8. Maintenance and Upkeep
Owning a home comes with ongoing responsibilities:
Regular Maintenance: Budget for routine maintenance to avoid costly repairs. Setting aside funds for unexpected repairs can help maintain your home’s value.
Home Improvements: Enhancements can increase your property value and equity.
9. Tax Deductions
Homeownership can offer tax benefits:
Mortgage Interest Deduction: You may deduct the interest paid on your mortgage. Be aware of any eligibility requirements or limits.
Property Tax Deduction: Property taxes paid can also be deducted.
10. Communication with Your Lender
Maintain open communication with your lender:
Address Changes: Inform your lender if your contact information changes, including your mailing address, phone number, or email.
Financial Hardships: Reach out to your loan officer at UnrealFi immediately if you experience financial difficulties to discuss possible solutions.
Homeowner’s Insurance Changes: Let your lender know when you switch homeowners insurance providers to avoid a lapse in coverage. If you don’t inform the lender, they will force insurance on you, which can be three times more expensive. If this has occurred, please contact us ASAP; we may be able to reverse it.
Resolving Issues Promptly: Address any issues or discrepancies with your lender as soon as they arise to prevent larger problems.
Scams Targeting Homeowners: Be cautious of mailers or calls claiming your mortgage insurance is about to expire, which are often attempts to sell you life insurance. Verify any such claims directly with your lender before taking any action.
Conclusion
Closing on your mortgage is a significant milestone, but understanding what happens next ensures a smooth transition into homeownership. Keep track of your payments, stay on top of property taxes and insurance, and maintain open communication with your lender. By staying proactive and informed, you’ll navigate post-closing with confidence and ease.
Feel free to reach out if you have any questions or need further assistance with your mortgage journey. Happy homeownership!
