The Closing

The Closing of your home purchase, also called Loan Settlement, or Closing Escrow is when you make the rest of your down payment, sign all necessary legal documents, and get the keys to your NEW HOME.

So you searched, found, negotiated, inspected and financed your new home and it's time to close the deal and get the keys, but what is involved in this closing of escrow?

It's time to "sign on the dotted line" and there will definitely be a lot of signing, specially if you are financing the purchase. Included in the paperwork you will sign, will be documents that put the title of the house in you name, and commit to the terms of the mortgage. Along with these documents the homeowner's insurance will be verified, your deposit (certified funds) are collected, your lender will fund the loan and the funds are dispursed.

The location of the closing varies depending on your local laws and your real estate contract. In Broward County, the buyer chooses the closing agent, therefore the closing normally occurs at the office of the Buyer's attorney or title company. Some sellers choose to have their own independant closer, which will provide the seller's documents. Closings can also occur at the home, but this is rare.

Here are a few of the Expenses generally involved with the closing:

  • Transfer taxes are required by some localities to transfer the title and deed from the seller to you.
  • Recording fees for deed pay for the county clerk to record the deed and mortgage and change the property tax billing.
  • Other state and local fees can include mortgage taxes levied by states as well as other local fees.
  • Pro-rated taxes such as school taxes, municipal taxes may have to be split between you and the seller because they are due at different times of the year. For example, if taxes are due in October and you close in August, you would owe taxes for 2 months while the seller would owe taxes for the other 10 months. Prorated taxes usually are paid based on the number of days (not months) of ownership. Some lenders may require you to set up an escrow account to cover these bills. If your lender does not require an escrow account, you may want to set up a special account on your own to make sure you have money set aside for these important, and large, bills.
  • Attorney fees. You will probably want to work with an attorney when buying a home. Attorneys usually charge a percentage of the selling price (three-fourths or 1 percent), but some may work for a flat fee or on an hourly basis.
  • Title search costs. Usually your attorney will do or arrange for the title search to make sure there are no obstacles (liens, lawsuits) to your owning the home. In some cases, you may work with a title company to verify a clear title to the property.
  • Homeowner's insurance. Most lenders require that you prepay the first year's premium for homeowner's insurance (sometimes called hazard insurance) and bring proof of payment to the closing. This insures that their investment will be secured, even if the house is destroyed.
  • Real estate agent's sales commission. The seller pays the commission to the real estate agent. If one agent lists the property and another sells it, the commission usually is split between the two. In some case the buyer might have a processing fee.
  • Origination or application fees. These are fees for processing the mortgage application and may be a flat fee or a percentage of the mortgage.
  • Credit report. If you are making a small down payment (usually less than 25%), most lenders will require a credit report on you and your spouse or equity partner. This fee often is a part of the origination fee.
  • Points. A point is equal to 1% of the amount borrowed. Points can be payable when the loan is approved (before closing) or at closing. Points can be shared with the seller--you may want to negotiate this in the purchase offer. Some lenders will let you finance points, adding this cost to the mortgage, which will increase your interest costs. If you pay the points up front, they are deductible in your income taxes in the year they are paid. Different deductibility rules apply to second homes.
  • Lender's attorney's fees. Lenders may have their attorney draw up documents, check to see that the title is clear, and represent them at the closing.
  • Document preparation fees. You will see an amazing array of papers, ranging from the application to the acceptance to the closing documents. Lenders may charge for these, or they may be included in the application and/or attorney's fees.
  • Preparation of amortization schedule. Some lenders will prepare a detailed amortization schedule for the full term of your mortgage. They are more likely to do this for fixed mortgages than for adjustable mortgages.
  • Land survey. Most lenders will require that the property be surveyed to make sure that no one has encroached on it and to verify the buildings and improvements to the property.
  • Appraisals. Lenders want to be sure the property is worth at least as much as the mortgage. Professional property appraisers will compare the value of the house to that of similar properties in the neighborhood or community.
  • Lender's mortgage insurance. If your down payment is less than 20 or 25%, many lenders will require that you purchase private mortgage insurance (PMI) for the amount of the loan. This way, if you default on the loan, the lender will recover his money. These insurance premiums will continue until your principal payments plus down payment equal 20 or 25% of the selling price, but they may continue for the life of the loan. The premiums usually are added to any amount you must escrow for taxes and homeowner's insurance.
  • Lender's title insurance. Even though there is a title search for any obstacle (liens, lawsuits), many lenders require insurance so that should a problem arise, they can recover their mortgage investment. This is a one-time insurance premium, usually paid at closing; it is insurance for the lender only, not for you as a purchaser.
  • Release fees. If the seller has worked with a contractor who has put a lien on the house and who expects to be paid from the proceeds of the sale of the house, there may be some fees to release the lien. Although the seller usually pays these fees, they could be negotiated in the purchase offer.
  • Inspections required by lender. (termite, water tests) If you apply for an FHA or VA mortgage, the lender will require a termite inspection. In many rural areas, lenders will require a water test to make sure the well and water system will maintain an adequate supply of water to the house (this is usually a test for quantity, not a test for water quality).
  • Prepaid interest. Your first regular mortgage payment is usually due about 6 to 8 weeks after you close (for example, if you close in August, your first regular payment will be in October; the October payment covers the cost of borrowing money for the month of September). Interest costs, however, start as soon as you close. The lender will calculate how much interest you owe for the fraction of the month in which you close (for example, if you close on August 25, you would owe interest for 6 days). In some cases this is due at closing.
  • Escrow account. Lenders will often require that you set up an escrow account into which you will make monthly payments for taxes, homeowner's insurance, and PMI (mortgage insurance, if required). The amount placed in this escrow account at closing depends on when property taxes are due and the timing of the settlement transaction. The lender should be able to give you a close approximation of these costs at the time you apply for your mortgage loan.
  • Home Inspections. (structural, water quality tests, radon tests) In addition to inspections required by the lender, you may make the purchase offer contingent on satisfactory completion of some other inspections. You and the seller will need to negotiate these fees.
  • Owner's title insurance. You may want to purchase title insurance for yourself so that if problems arise, you are not left owing a mortgage on a property you no longer own. A thorough title search (going back to 1900 if necessary) is often assurance enough of a clear title.
  • Appraisal fees. You may want to hire your own appraiser, either before you sigh a purchase offer or after seeing the results of the lender's appraisal.
  • Money to the seller. (for example, for fuel oil in the tank) You will need to pay for items in the house that you want and that were not negotiated in the purchase offer. Such items may include appliances, light fixtures, drapes, or lawn furniture and also fuel oil and propane left in tanks.
  • Moving expenses. If you are changing jobs, your new employer may pay for your move. Otherwise, you must figure in the cost of moving, either truck rental and hired help or a professional mover. Shopping around for moving services can pay off. You will also need cash for utility deposits (phone, cable, and the like).
  • Escrow account funds. (for example, for cleanup, radon mitigation, untested appliances) In the purchase offer, you can request that the seller set up an escrow account to defray any costs of major cleanup, radon mitigation procedures, house painting, or other items. Also, if you have not had a chance to try out some appliances (the furnace if you buy in the summer or the air conditioner if you buy in the winter), you may request an escrow account to cover repairs if necessary.

Depending on your Mortgage Lender, there might be other mortgage disclosures:

RESPA
Truth in Lending

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