ALL ABOUT CLOSING
A “closing,” also called a “settlement,” is when property ownership is transferred from one party to another. The actual process can take 30 to 60 days, after which a closing date is set to sign contracts and literally hands the keys from the seller to the buyer.
Even though “closing” or “settlement” is commonly thought of as the actual day that the transaction is finalized, it’s actually a process that begins as soon as a purchase contract is signed. It comprises the following:
Inspection — This protects you against any structural or other major flaws. Hire a professional inspector to walk you through the property and detect any issues. Be sure to obtain a written summary of the inspector’s findings.
Appraisal — Your lender will require an appraisal of the property’s fair market value to ensure they’re not lending you more than the house is actually worth. Your real estate agent can help you find a licensed appraiser. In most cases, however, most lenders have their own appraiser and will take care of scheduling this directly with the realtor or homeowner.
Title Insurance — Title insurance protect you against any unforeseen claims against the property that may arise. Don’t delay, get title insurance as soon as you enter into a contract to buy.
Homeowner’s Insurance — Because your new home will be used as collateral against your loan, your lender requires that you to take out homeowner’s insurance. Be sure to do this well in advance of the closing date. You will likely be required to show proof of purchase, called a “binder,” as a condition of sale. Your insurance company provides the binder.
Walk-Through – Within 24 hours before your closing date, conduct a walk-through of the property to ensure that it’s in good condition and that any issues and/or contingencies (usually raised by the inspection) are resolved.
What Your Title Company (that would be us, Foundations 1st) is Doing as Part of the Closing Process Our job is to coordinate many behind-the-scenes activities and gain the cooperation among all interested parties to ensure a smooth and mutually satisfying transaction. During the closing process, we’re conducting a search on the property’s title. We pore through property records looking for potential problems that might prevent a smooth transfer of ownership. Such issues include old liens, tax liability, and housing code violation We may also physically inspect the property to verify the lot size and check for unrecorded easements. Once our work is complete, we offer title insurance to the lender to protect the bank from any undiscovered issues surrounding the title. Because the lender’s policy protects only the lender, you’ll want to be sure you’re covered by a title insurance policy of your own. In addition, we ensure the purchase contract is complete and accurate. If you’ve paid a deposit or “earnest money,” the agent places the funds into an escrow account. The agent also coordinates the payoff of an existing mortgage, making sure the payoff figure is available for the final closing. If there are any problems with the property, we bring them to the attention of all parties involved for resolution.
When “closing day” finally arrives, you’ll meet with several parties to finalize the transfer of property. Generally, the steps are:
- Sign Documents — You’ll be asked to initial or sign a number of documents.
- Pay Closing Costs and Escrow — You should arrange to have funds wired to pay for closing costs.
- You Will Get the Keys — Once all papers are signed and the money has changed hands and everything has been recorded and is perfectly legal, you’ll receive the house keys.
After the settlement meeting, we officially record the mortgage and deed at your local Recording Office or Register of Deeds. Funds held in escrow, such as broker commissions and money owed to the seller, are disbursed after the transaction is recorded at the municipal office.
A number of different parties are involved in the process of refinancing or transferring ownership of real estate. You can expect to see any or all of them at the closing itself.
- Your Real Estate Agent — Represents your interests in purchasing the property and acts as an intermediary between you and the seller. Generally assists in helping you purchase property for the lowest possible price and best terms.
- Seller — Signs the deed over to the buyer.
- Seller’s Real Estate Agent — This real estate agent represents the seller (who may not be present at the closing itself). Generally assists in helping the seller get the highest possible price and best terms for the property.
- Settlement Agent — A representative from your title company or an attorney responsible for facilitating the closing by preparing, recording, collecting and disbursing funds.
- Lender/Bank — The institution (usually a bank or mortgage company) that lends the money to the buyer. The lender is often called the “mortgagee”, while the borrower is referred to as the “mortgagor.”
- Loan Servicer — The institution that will receive and process your mortgage payments and manage your escrow account. This is often the lending institution, but not always.
You will be asked to initial or sign a number of documents during the closing. Among the most important are:
- Good Faith Estimate — A written estimate provided by the lender of all charges—including closing costs and pre-paid and escrowed items—you are likely to pay at closing. You should receive this within three days of submitting your loan application. You’ll want to compare your estimate with the HUD-1 (see below) before your closing date.
- Note — A promissory note that states your intention to pay a specific sum of money at a specified rate of interest within a fixed period of time.
- Deed of Trust (Mortgage) — A legal document that gives the lender the right to take possession of the property if the borrower fails to pay off the loan. In some states, this is known as a “deed of trust.”
- Certificate of Occupancy — Issued by a local municipality stating that the home meets all building codes and is suitable for habitation. Relevant if you’re purchasing a newly built or renovated home.
- HUD-1 — Also called the “settlement statement.” Provides an itemized breakdown of all costs and disbursements associated with the sale of the home. You are entitled to review this document a day before closing—compare it with your Good Faith Estimate and resolve any issues before settlement.
- Final TILA statement — “Truth In Lending Act” statement that discloses the full cost of your mortgage and annual percentage rate (APR). It shows any modifications such as rates and points that may have been made since applying for the loan.
These charges will vary widely from state to state and lender to lender, but will likely include:
- Points — Money paid by a borrower to the lender in exchange for a lower interest rate. Each point equals 1% of the loan amount.
- Mortgage Application Fees — Charged by the lender to cover the costs of processing a loan application. It’s sometimes paid up front at time of application; otherwise, it’s included in the closing costs.
- Appraisal Fees — The cost of paying a professional to assess the fair market value of the property. Usually required as a condition of the loan.
- Inspection Fees — The fees charged for home, pest and other inspections. Lenders sometimes require inspections to verify that the property is in good condition and will retain its collateral value.
- Survey Fee — The charge for confirming the lot size and shape and to check for any encroachments.
- Title Search Fee — Paid to your title company to verify that the home’s title is “in the clear,” (i.e., that there are no liens or outstanding claims on the property).
- Title Insurance Premium — The lender’s policy covers only the lender and is required in most cases. A buyer’s policy is optional but highly recommended, and is usually very affordable if purchased at the same time as the lender’s policy.
- Recording Fees — Charged by the local register of deeds to make the transfer of property a matter of public record.
- Pre-paid Property Insurance — The first full year’s property insurance premium, paid in advance to the homeowners insurance company.
- Pro-rata Property Taxes — An adjustment to ensure that both the seller and the buyer pay their share of the annual property tax, proportionate to the percentage of the year that each has ownership of the property.
- Pro-rata Interest — An adjustment to cover the interest on the loan for the number of days until the first payment is due.