Q: I purchased a house and several years later got a home equity line of credit. I remortgaged the house several times along the way. For each of these transactions, I received a folder filled with documents related to each loan and probably have a couple hundred pages including appraisals, addendums and other documents.
But all this paperwork is kind of annoying. What do I really need to keep?
A: Good question. These days, financial institutions like mortgage companies are distributing more documents electronically. So, if you have a folder on your computer with these documents, we don’t think you need to keep any of the physical documents. Today, most (if not all) of these documents will be delivered to you electronically, and if you have physical documents leftover from long ago, you can scan them into your computer as well.
But you’ll want to make sure you have a backup of the file. Some of these documents will come in handy over time. And you’ll want to keep the paper copy of at least a few of them.
When you close on your loans, you should have received a closing statement outlining all of the closing costs associated with the deal. You’ll want to keep these closing statements handy. By keeping them, you can keep track of what you paid to close each loan. And you might need them for federal income tax purposes to the extent that you deducted expenses from the closing on your federal income tax returns.
Depending on where you live, you should also keep the appraisals of your home. These appraisals might come in handy should you decide to contest your real estate tax valuation. When you contest the value of your home with the local tax authorities, they sometimes request a copy of a recent appraisal. If for nothing else, the appraisal will have pictures of your home and over time the various appraisals will act as a historical reference for your home.
If you refinanced any of your loans, the former lender should have sent you a letter letting you know that your balance due on the loan was zero. We’d suggest you keep track of these statements as well. And, if the lender mailed you a document to file or record the release of mortgage or trust deed, make sure that the original of that document was recorded or filed appropriately. You should keep an electronic copy of the recorded release of mortgage or release of trust deed as well.
Frequently, you’ll close your loan or a refinance of a loan with a title company settlement agent or closing attorney. At, or before, each closing you might have received a title insurance report, title commitment or title policy. If you did, we’d suggest you keep a copy of each commitment from each loan closing.
As for the other documents, we don’t think you need to keep them, although it’s no big deal if they’re organized in a computer file. Certainly, if the documents are at least seven years old, it’s unlikely you’d need them for anything, but if you have electronic copies of the documents organized in separate files, just keep them. It’s unlikely you’ll need the paper copies for anything.
Switching gears to the purchase of your home, you should keep a copy of the deed that conveyed ownership of the home to you as well as the original title insurance policy. We’ve always recommended that buyers obtain title insurance when they purchase a home. So, if you purchased or received an owner's title insurance policy, report or opinion, keep that original copy. While we hope you never need it, that’s one document you want to keep in paper form, although you should scan it so you have an electronic backup just in case.
If you’ve narrowed down your paperwork to 10 or 15 pages from each closing, you can keep those pages for many years to come. For federal income tax purposes, you probably only need to keep records for seven years following the year in which you filed the applicable income taxes. But if you still live in the home, we’d suggest you keep these documents for at least the time you live in the home or at least until seven years after you’ve sold the home and filed your taxes on the sale of the home.
(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)