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REAL ESTATE CLOSINGS
This month topic
was chosen because it will be an area of discussion during a
Question/Answer Forum that I will be presenting June 7th, in
Lake Havasu City . Real Estate Closings seem to be a topic that is
a very important, but frequently misunderstood element of the home
buying and selling transaction.
“Closings”
what are they?
It is basically
just a meeting around a table, which both the buyer and the seller
finalize the sale of a property with paperwork to sign. In some
states though, an escrow agent conducts closings. If an
escrow agent is used the parties do not meet around a table to
sign documents. The buyer and seller will separately go to the
office and sign the documents with the escrow agent. (widely used
in western states).
What are
“Closing Costs”?
For the buyer they are fees
that are required by the lender of the mortgage they have secured
and the state, city, or county for items such as:
-
Recording fees
-
Settlement fees, etc.
For the Seller they are usually
fees required by the State, City, or County for:
Closing costs vary from state to state
and from lender to lender.
Who does the
“Closing”?
Depending upon
the locality, county, or city, settlement practices can vary. The
closing may be conducted by title insurance companies, attorneys
for the buyer and/or the seller, escrow companies, and yes even by
the lender or the real estate broker.
What document
outlines the costs for the Buyer and Seller?
This document is
commonly referred to as a “”Hud-1 Settlement Statement”. It
itemizes the Buyer’s costs on one half of the statement and the
Seller’s itemized costs on the other half. The bottom total on the
seller’s half will be the “profit” that they will receive from the
sale of the property after the itemized costs. The bottom total on
the buyer’s half will be the amount that the buyer must pay to
finalize the purchase of the property.
What are some
of the settlement costs for the Buyer? (some costs may or may
not apply depending again upon city, state, or county)
Costs
Connected with the Loan:
-
Loan Origination: referred
to as “fee” or “points” (lender’s cost for processing the loan)
-
Loan Discount: referred to
as also “points” or “discount points” (a one time charge which
is paid by the buyer to “buy down” to a lower interest rate if
desired)
-
Sales/Broker’s Commission:
Seller pays the percentage agreed upon to the Realtor.
-
Credit Report: sometimes no
cost or a nominal cost.
-
Mortgage Insurance Application
Fee: processing of application for mortgage insurance
-
Interest: that accrues from
the settlement date to the first payment.
-
Mortgage Insurance Premium:
Lender may require one year mortgage insurance payment.
-
Hazard Insurance Premium:
Insurance protecting you and the lender against a loss.
Typically the lender requires first year premium to be paid in
full.
-
Escrow Account Deposits:
Buyer’s portions of taxes and/or insurance placed in an escrow
account with lender.
-
Title Charges: a variety of
charges by the title company and others.
-
Settlement of Closing Fee:
paid to the “closer”. This can be negotiated as to a Buyer’s fee
or a Seller’s fee.
-
Abstract of Title Search, Title
Examination, Title Insurance Binder: Title search and exam
costs. Some states require the Seller to incur this cost.
-
Document Preparation: Some
lenders or title companies charge for preparing the deed, note
or mortgage.
-
Notary Fee: For any documents
that is required to be notarized.
-
Attorney Fees: the buyer or
seller’s attorney cost. The lender also may charge a fee to have
the title binder examined by an attorney.
-
Title Insurance: cost of
lender’s and owner’s title insurance.
-
Lender’s Title Insurance: The
cost of the lender’s policy.
-
Owner’s (Buyer’s) Title
Insurance: The cost of the buyer’s policy.
-
Government Recording And Transfer
Charges: Fees that can be divided between the seller and the
buyer.
-
Survey: The lender may
require that a property survey be done.
-
Pest and Other Inspections:
Some lenders require termite or other pest infestation
inspection.
-
Lead-Based Paint Inspections:
Some lenders or municipalities may require.
-
Appraisal Fee: for an
appraisal report
Courier Fees: Some documents may have
to be expedited.
Note: Some items may be
required to be paid before your closing, i.e. credit reports and
appraisals.
When you are
pre-approved by a mortgage person or a bank, be sure to ask for
a “Good Faith Estimate” This will be an estimate of
your closing costs that will include lender’s costs, as well as
some of the above costs that may be required for your situation.
Be Aware of:
At the closing
table be sure to take your time and read all the documents.
Closing agents tend to just push a pen and documents in front of
you and give you a quick interpretation of what you are signing.
If you are unsure..stop..explain that you would like to read the
document! This is your “life, investment, etc.” that you are
signing on or away! The Closer will be happy to answer any
questions. Make sure you are not being charged for items that you
have already paid for, such as appraisal or inspections. Your
lender may have given you the option of not having your taxes and
insurance put into an escrow account…make sure you are not being
asked to give those funds at the closing. Make sure you are being
charged the correct portion of property taxes, homeowner
association fees, trash, or ay other annual bills (the dollar
amount should start from the month and day that you are now taking
occupancy until December 31.) If there are any outstanding utility
bills, liens, taxes, assessments, etc. the seller must have them
deducted from their net proceeds. Lastly and most importantly as
stated in my book in more detail: If you feel any document is
incorrect, or your mortgage terms are NOT what you agreed upon,
etc. DO NOT feel pressured to sign. The attorney or closer
will telephone the mortgage company and try to work it out for
you. Even if it is late in the day and the mortgage company is
closed, they can always be contacted the next business day, and
you can continue the closing the next day if necessary! Yes when
in this situation it has always worked for me! One time I had an
attorney and the seller had an attorney and the two attorneys were
trying to “bully” me to sign a mortgage that required an escrow.
They would not listen to me when I tried to explain that was not
agreed. Well I asked them to call the lender. When the attorney
hung up the phone red in the face and told me it was not required,
I took the document and tore it up right in their faces! For more
tips and info read my book….
Good luck!
Irene
Montalban
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