Buying a home is exciting, but it can also be overwhelming, especially to first-time homeowners who have no idea what to expect on their maiden voyage into homeownership. There is so much that has to be done, so many details that have to be sorted out, such as: paperwork that needs to be completed, monies transferred, documents signed — it can sometimes seem like a confusing and daunting process that will never end.
It doesn’t have to be that way. The following article will help take the mystery out of the most important aspect of home buying — Closing. The Closing is the final step in buying a home and once it is completed, the home is yours. Let’s break it down in simple terms:
Who attends Closing?
- The seller of the home
- The person buying the home
- Closing agent (The coordinator of all closing documents. He/she may also be responsible for coordinating the title insurance and escrow issues or, if not, a separate party may take care of each.)
- Your real estate agent
Getting ready for Closing
After finding a property that you would like to buy, you will want to get qualified by a mortgage broker. It is required by law that the mortgage broker sends you what is called a "Good Faith Estimate" (a list of your closing costs) within three days of your inquiry. Because there are always some fees that are added to the Good Faith Estimate such as owner's title insurance, homeowner’s dues, interest adjustments, and escrow funds, it is good practice to be prepared to double the estimate if necessary.
Closing costs are usually 3-5% or the entire loan. You must be prepared to hand over a check of your closing costs at the Closing. The Mortgage Broker will give you the exact amount of your closing costs just prior to closing. There are essentially two main types of closing costs: Recurring Costs (costs that you only have to pay once, such as title insurance, survey, appraisals, credit checks, loan and documentation fees, processing fees, hazard and mortgage insurance, and pre-paid interest), and Non-Recurring Costs (costs that you continue to pay over the life of your loan such as, property taxes placed in escrow and homeowners)
The Good Faith Estimate will also include the following items:
- Loan Origination fee – fee of 1% of the amount borrowed
- Loan Discount fee – points associated with the interest rate of your loan
- Loan Application fee – cover the initial cost of processing your loan
- Points to be paid – costs associated with the interest rate on your loan
- Appraisal fee – costs for an independent appraisal of the home
- Survey fee – costs of surveying property and property lines
- Credit Report – cost to order your credit history and score from the three major credit bureaus
- Lenders Inspection fee – fee for appraisal uncovers anything that needs to be repaired or fixed
- Lenders attorney fees - costs of the lenders used to offset the fixed costs of loan origination
- Buyer’s attorney fees - fee for preparing and reviewing all of the documents needed to close your loan
- Mortgage Broker commission or fee
- Flood Certification fees – costs require by law to determine if home is in a flood zone and to determine if flood insurance is needed
- Tax Service fee – fee to verify that the property tax payment sent to the assessor's office was credited to the correct package
- Processing fee – fee for preparing legal and miscellaneous documents that are required at closing. (mortgage note, deed of trust, Truth in Lending forms, and escrow instructions)
- Underwriting fee – cost of evaluating your loan application to determine whether or not to approve your loan
- Wire Transfer fee – costs of wiring the funds to the escrow company supervising the loan closing.
- Pre-paid Interest – interest paid from the day of settlement to the date of the first mortgage payment
- Private Mortgage Insurance (PMI) - if your down payment is less than 20%, you will be required to have private mortgage insurance
- Hazard Insurance premiums – the costs of one year premium for homeowner's insurance at or before closing
- Settlement or Closing/Escrow fee - a fee charged for the services of the escrow agent
- Title search & Title insurance to protect your lender – fees for investigating the owner history of the property
- Title insurance – fees to protect the owner if any claims are made to the property. (This includes legal fees and the fees up to the full cost of the initial loan)
- Tax stamps – cost of stamp that is attached to the document to verify that stamp duty was paid before the document becomes legally effective
- Notary fee – Prior to recording the mortgage deed of trust, the signature of the borrowers must be notarized. A certified Notary Public will witness the signature on recordable documents.
- Pest inspection – costs incurred to have some certify that your house is pest-free
- Recording fees - charged for recording the deed and mortgage at the local court house
What do you need to bring with you to Closing?
Now that the big day is finally here, it’s important to make sure you bring all of the proper documents with you to the Closing, as well as know what’s going to take place.
Here’s what you need to know:
- Bring a photo ID with you to closing
- Certified funds or a cashier’s check made payable to you (You can endorse it over to the lawyer at the closing)
- Proof of premium paid on Homeowner’s Insurance
- Read the Settlement Statement and all other closing documents before you sign
- Sign the sales contract
- Review the pest inspection letter
- Buyer signs the mortgage and note
- Seller hands over the deed to the house
- The buyer pays the lender's agent all closing costs, and the closer provides the buyer with a settlement statement listing all the monetary items.
- The home seller should bring all warranties on equipment and any instructions on equipment maintenance or operation.
- The seller hands over the keys to the buyer
- After Closing, the closing agent records the deed and mortgage
Closing can be a quick and easy event as long as everyone comes prepared with the right documents and information. But most of all, once the keys are passed over to you, you become the proud owner of a new home. Enjoy!