9. Close
"Closing" refers to the meeting where ownership of the property is legally transferred to the buyer. It is a formal meeting in which most parties involved in the buying/selling process will attend. Closing procedures are usually held at the title company's office or lawyer's office. Your closing officer coordinates the document signing and the collection and disbursement of funds. Your agent will generally be present at your closing to read the documents on your behalf, answer any questions, or help to resolve any last minute or unexpected details that may come up.
In order for the closing to go smoothly, each party involved should bring the necessary documentation and be prepared to pay any related fees (closing costs). There may be more than one form of acceptable payment for your closing costs so ask the closing officer which form of payment will be required and to whom it should be made out. Closing costs will generally total an amount equal to 2 to 3 percent of the total loan value not including down payment and the buyer's escrow account.
Sellers sometimes pay for a portion or all of the closing costs, depending on local market conditions, terms of the purchase contract, and the seller's cash and timing considerations. Any such concessions should be acknowledged in writing. Most lenders will allow a credit from the seller to the buyer for the non-recurring closing costs. However, they usually won't allow a credit that reduces the amount of the buyer's down payment or any of the buyer's recurring costs, such as expenses for fire insurance premiums, PMI, or property taxes.
Common Closing Costs for Buyers
You’ll likely be responsible for a variety of fees and expenses that
you and the seller will have to pay at the time of closing. Your lender
must provide a good-faith estimate of all settlement costs. The title
company or other entity conducting the closing will tell you the
required amount for:
• Down payment
• Loan origination
• Points, or loan discount fees, which you pay to receive a lower interest rate
• Home inspection
• Appraisal
• Credit report
• Private mortgage insurance premium
• Insurance escrow for homeowner’s insurance, if being paid as part of the mortgage
• Property tax escrow, if being paid as part of the mortgage. Lenders
keep funds for taxes and insurance in escrow accounts as they are paid
with the mortgage, then pay the insurance or taxes for you.
• Deed recording
• Title insurance policy premiums
• Land survey
• Notary fees
• Prorations for your share of costs, such as utility bills and property taxes
A Note About Prorations: Because such costs are usually paid on
either a monthly or yearly basis, you might have to pay a bill for
services used by the sellers before they moved. Proration is a way for
the sellers to pay you back or for you to pay them for bills they may
have paid in advance. For example, the gas company usually sends a bill
each month for the gas used during the previous month. But assume you
buy the home on the 6th of the month. You would owe the gas company for
only the days from the 6th to the end for the month. The seller would
owe for the first five days. The bill would be prorated for the number
of days in the month, and then each person would be responsible for the
days of his or her ownership.
5 Things to Know About Title Insurance
Title insurance protects the holder from any losses sustained from
defects in the title. It’s required by most mortgage lenders. Here are
five other things you should know about title insurance.
1. It protects your ownership right to your home, both from fraudulent
claims against your ownership and from mistakes made in earlier sales,
such as mistake in the spelling of a person’s name or an inaccurate
description of the property.
2. It’s a one-time cost usually based on the price of the property.
3. It’s usually paid for by the sellers, although this can vary depending on your state and local customs.
4. There are both lender title policies, which protect the lender, and
owner title policies, which protect you. The lender will probably
require a lender policy.
5. Discounts on premiums are sometimes available if the home has been
bought within only a few years since not as much work is required to
check the title. Ask the title company if this discount is available.
Closing Documents You Should Keep
On closing day, expect to sign a lot of documents and walk away with a big stack of papers. Here’s a list of the most important documents you should file away for future reference.
• HUD-1 settlement statement. Itemizes all the costs — commissions, loan fees, points, and hazard insurance —associated with the closing. You’ll need it for income tax purposes if you paid points.
• Truth in Lending statement. Summarizes the terms of your mortgage loan, including the annual percentage rate and recision period.
• Mortgage and note. Spell out the legal terms of your mortgage obligation and the agreed-upon repayment terms.
• Deed. Transfers ownership to you.
• Affidavits. Binding statements by either party. For example, the sellers will often sign an affidavit stating that they haven’t incurred any liens.
• Riders. Amendments to the sales contract that affect your rights. Example: The sellers won’t move out until two weeks after closing but will pay rent to the buyers during that period.
• Insurance policies. Provide a record and proof of your coverage.
Sources: Credit Union National Association; Mortgage Bankers Association; Home-Buyer’s Guide (Real Estate Center at Texas A&M, 2000)