What do I need to know about closing on my home?

 Once you’ve signed a contract to buy a house, the preparation for settlement begins. Settlement, or closing escrow, is the process of transferring the title (ownership) of the home from seller to buyer.
Often, the real estate agents involved in the sale help you take care of these arrangements. But the buyer and seller are ultimately responsible for attending to these details.
Here are the basics.

Buyer’s Responsibilities

  • Getting financing The buyer must first secure the financing to buy the house. Usually this means taking out a mortgage loan. Most lenders require a complete financial picture, including income and expenses, and a credit check. In addition, most want an up-to-date appraisal of the home, a survey of the property and, often, some inspections (for termites, radon gas, etc.). Some lenders specify which service providers they want the borrower to use. Once all the paperwork is in, the borrower should keep in touch with the lender until receiving a loan commitment.
  • Buying hazard insurance The buyer needs to purchase a hazard insurance policy (also called homeowner's insurance) – usually bringing a paid receipt to settlement – to protect the lender. If the buyer wishes to bring an attorney to settlement, arrangements should be made 30 to 60 days in advance.
  • Expect an estimate of closing costs A few days before settlement, the buyer should receive a Good Faith Estimate of settlement costs. In addition to the loan commitment letter, the buyer must bring a certified or cashier’s check for the down payment and any other costs due at settlement. These costs include mortgage interest from the closing date to the first payment due, escrow for property taxes and insurance, and various taxes and recording fees. Be sure to bring your regular checkbook in case miscellaneous costs need to be paid.
  • Plan ahead for settlement Both the buyer and seller need to give the settlement agent all pertinent information requested. And, since many long and detailed forms are usually signed at settlement, you might consider requesting copies of the basic settlement forms several days in advance to read them and familiarize yourself with the process. The focus at the settlement table will be on checking the exact figures to be sure everything is accurate.
  • Send a representative if you can’t attend If you cannot come to closing, be sure to notify the settlement agent in advance so a Power of Attorney can be prepared. Once the papers are signed and money paid, the keys are handed over to the buyer and the sale is complete.

Click on “Ask Your Own Questions” or call or e-mail us for answers to all of your concerns about buying a home.

What are some typical closing costs?

When you apply for a mortgage, the lender must respond with a Good Faith Estimate of Closing Costs, which explains the costs you will likely have to pay at settlement. But the numbers on the form are estimates, and the final tally could be higher or lower.

Some of the more common charges are:

  • Loan Origination Fee: usually 1% of the loan;
  • Loan Discount Points: a form of accelerated interest; each point is 1% of the loan amount (who pays points is negotiable between buyer and seller);
  • Appraisal Fee: the charge to have a professional appraiser certify the value of the property being purchased;
  • Credit Report: the cost of getting a credit history from a credit service;
  • Tax Service Fee, Document Preparation Fee: charges to set up a tax escrow account and prepare mortgage documents;
  • Attorney Fees: the settlement agent's charges for processing the sale closing;
  • Title Insurance: charges for insurance to guarantee the validity of the property's title for the lender; buyers can also purchase title insurance at settlement to protect their interests;
  • Recording Fees, Tax Stamps: local charges to officially record the deed and mortgage, and transfer taxes;
  • Survey: the charge to verify the boundaries of the property being purchased.

We’re a little tight on cash. How can we shift some settlement costs to reduce out of pocket expenses?

 Some buyers reduce the cash needed at settlement by scheduling closing at the end of the month. But there are several other ways to save on closing costs that may work better in the long run.

  • Skip late-month settlement Since interest on the loan is paid to the end of the month at settlement, the interest payment gets lower as you get closer to the end of the month. But another approach is to wait a few days until the beginning of the next month. That way, you'll need to pay more up front at settlement, but you'll gain a whole month's delay before the first full mortgage payment is due, because mortgage interest is paid in arrears, after the month has passed.
  • Reduce out-of-pocket cash Another way to reduce the cash needed at settlement takes some advance planning. By negotiating with the seller, the buyer may be able to pay more for the home and finance it, while the seller puts an equal amount toward out-of-pocket settlement costs.
  • Finance closing costs A third option is to find a lender who will finance closing costs by wrapping them into the mortgage. This method may, however, cost more over the long run, as lenders often will then charge a higher interest rate for a "no closing costs" loan.

What are some sources for out of pocket cash to pay closing costs?

 Sometimes the amount of cash needed to close a sale comes as a shock to the buyer. Taxes, recording fees, insurance premiums, pro-rated interest, escrow deposits and other expenses can easily reach into the thousands of dollars. Rather than reduce the down payment to pay these costs, many homebuyers have other sources of funds they might not think of using.
Here are seven to consider:

  • Gifts Lenders like these best because they do not have to be repaid. Miss Manners may object, but this would be a good time to ask for cash in lieu of a birthday or wedding present.
  • Concessions Ask the seller to pay some of the closing costs. You may pay more for the home, but you will have more cash to use for down payment than if you use part of your savings for settlement expenses.
  • Lender programs Some lenders are willing to wrap the closing costs into the loan total, but will charge you a higher interest rate for the loan. You may be able to refinance for a lower rate later.
  • Sell something Some people have sold assets like an extra car, land, or stocks to raise the extra cash for closing.
  • Housing assistance programs Borrowers who meet moderate-income guidelines may be eligible for state or local loans or grants to help first-time home buyers.
  • Employer assistance Many companies have housing-assistance programs available through the Human Resources department. Some firms will allow an employee to borrow against a year-end bonus.
  • Borrow from yourself You may be able to take a loan out against your retirement account, life insurance or other restricted savings. You pay the interest to yourself. But be sure to repay what you borrow, since some programs have hefty fines and tax consequences if you don't.

What should I expect at the final “walk through?”

 Whether you buy a new house or one that has been occupied before, you want to make a final inspection before settlement. The “walk-through” should be scheduled long enough before settlement so any problems can be solved before you receive the keys.

  • Examine the house closely Examine the house closely to see that any contingencies the seller agreed to have been attended to. Then look for any flaws that might have escaped your notice earlier. For instance, how does the house look without your predecessors' furniture? Has the builder made any changes since you saw the house before? Are the items that are supposed to remain still there?
  • Negotiate problems In some cases, problems will have to be taken care of after settlement. Just make sure you have a written agreement to that effect (with a timetable specified), to prevent misunderstandings.
  • Ask all your questions Don't be shy about asking questions during your final walk-through. Make a checklist of questions and answers and put your requests in writing as soon after the inspection as possible.
  • Get some help if needed If you're not sure what questions to ask, take your agent or an experienced inspector along with you. Or consult a home maintenance book ahead of time to alert you to problem areas.

We can help with every step of your home-buying experience. Call us or e-mail us now.

Once a settlement date is set, can it be changed?

 Settlement it the last step in home buying – before the moving begins, that is! Sometimes called closing, settlement is where the seller receives the funds from the buyer and the buyer gets proof of ownership. While everyone does their best to meet the settlement date, it is important to remember that many things can crop up to delay the settlement.
For instance:

  • Credit problems Problems with buyer's credit history that must be explained.
  • Paperwork delays Unforeseen delays in processing lending paperwork.
  • Appraisal problems Delays in property's appraisal.
  • Contingencies Inspections and/or repairs that must be completed before settlement.
  • Unresolved liens Liens against the property that need to be resolved.
  • Personal Problems Personal problems (such as a death in the family) that lead to rescheduling.

Remember, delays in settlement do not necessarily mean the transaction is falling apart. Most transactions do eventually go to settlement. Many problems can be straightened out in a day or so. The key is flexibility.