In general, what should I expect to happen at closing?

Quill with Paper Once you’ve signed a buyer’s purchase contract to sell your 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 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

  • Buyer gets a loan. 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 pests, radon gas, flood plain, 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.
  • Obtain homeowner’s insurance. The buyer needs to purchase a hazard insurance policy in advance for the new home. The buyer is also required to purchase title insurance policy – usually at 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.
  • Receive Good Faith Estimate. 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.
  • Seller’s Responsibilities
  • Select closing agent. The seller typically designates the settlement agent, usually 30 to 60 days before closing. The seller and listing agent work together to arrange inspections and appraisals and to provide needed paperwork such as a housing plat map, previous title insurance information and any prior inspections.
  • Give loan payoff notice. The sellers also need to check with their lender to get up-to-date figures for the payoff of the mortgage, and to learn if any rebates are due for pre-paid taxes or insurance.
  • Joint Responsibilities
  • Stay on top of details. 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, consider requesting copies of the basic settlement forms several days in advance to pre-read them if practical. The focus at the settlement table is on checking the exact figures to be sure they are accurate.
  • Designate legal representative. If either the buyers or sellers cannot come to closing, they should notify the settlement agent well in advance so a Power of Attorney form can be prepared. The person named on the form can act as the signer’s legal representative. Once all the papers are signed and money paid, the keys are handed over to the buyer and the sale is complete.
    • Once all the papers are signed and money paid, the keys are handed over to the buyer and the sale is complete.

Our professional approach can help you go to closing with confidence. Call or e-mail us for the kind of help and support we can provide.

Should I make the payment on my old mortgage a few days before closing on a new loan?

Hand with ChangeIf you are selling your home or refinancing your mortgage and the closing date for the new mortgage is near the due date of the old mortgage, you will still need to make that final payment.

  • Pay now or at closing. Mortgage payments include interest that is already owed on the mortgage, so interest is due on the current mortgage right up to the day of closing. If your final payment is not received before closing, you will have to pay the interest owed at closing.
  • Pay early. If the dates are too close to be sure the final payment is received and recorded by the bank, send the last check early or make arrangements with the bank or settlement agent so you are not charged with a missed payment or late payment fee.

Do I need to reinvest my proceeds to avoid taxes?

TaxesWhen you sell your old home you do not need to reinvest all, or any, of the cash received into a new home in order to avoid taxes. Since 1997, Uncle Sam doesn’t care how you reinvest the proceeds (savings, vacation, car purchase, bill consolidation, etc). Any gains up to $500,000 for married couples and up to $250,000 for singles are tax free, as long as:

  • You’re selling a principal residence.
  • You’ve lived in the house 2 of the last 5 years.
  • You haven’t sold your previous house within 24 months.

Are there any tax consequences to closing?

Pile of Cash
Home sellers need to remember any reimbursement received at settlement for previously deducted property taxes is considered income and is taxable. The IRS can now track property tax reimbursements thanks to a law which requires all title companies, escrow agents and brokers involved in a home sale settlement to provide the IRS with the seller’s Social Security number and the amount of property tax reimbursement.

What happens if the appraisal is too low?

Crumpled DollarWhen a too-low appraisal jeopardizes a contract on your home, you can:

  • Call Call the appraiser back and share information you think was overlooked.
  • Write Write to the appraiser with specific details.
  • Ask Ask the bank (in writing) for a reappraisal by a different appraiser.
  • Hire Hire an independent appraiser.
  • Renegotiate To make up the difference between the loan amount and the sales price, the buyer can increase the down payment; the seller can pay some of the buyer’s out-of-pocket closing costs; the seller can lower the sales price, or all three. The secret to keeping the deal together is flexibility.

Call or e-mail us. We can help your sale go more smoothly.