Final Closing Statement

You may believe that the most important piece of paper you get when closing is the deed to your new home. From an accounting standpoint, however, the most important piece of paper is the final closing statement that you get on the day that your home actually closes.

The final closing statement is like your checkbook. The final closing statement records all the money related to your home purchase:

• Credits: Any money that you paid in advance (such as your initial deposit and down payment) appears as a credit to your account. You may also receive credits from the seller for such things as corrective work repairs and property taxes. And, of course, your loan is a credit
• Debits: Funds paid out in your behalf are shown as debits. Your debits include modest and not-so-modest expenses, such as what you graciously paid the seller for your dream home, loan fees, homeowners-insurance premiums, and property inspection fees.

Several days before closing, you'll be given an estimated closing statement detailing what your closing costs will be if the home closes as scheduled. Check the estimated closing statement extremely carefully, line-by-line and from top to bottom, to be absolutely certain that it accurately reflects your credits and debits. Closing officers are human -- they sometimes make mistakes. So do other parties in the transaction who may have given the closing officer incorrect information.

And guess what -- when mistakes turn up, whose favor do you think they are in? Probably not yours! It's your money on the table. Pay attention to detail. Review the closing statement and question whatever isn't clear or correct.

The final closing statement is extremely important. Keep a copy for your files -- it will come in handy when the time comes to complete your annual income tax return. Some expenses (such as loan origination fees and property tax payments) are tax deductible. Furthermore, the closing statement establishes your initial tax (cost) basis in the property. When you're ready to sell your property, you may owe capital gains tax on any profit you've made by selling the property for more than your cost basis.