| THE CLOSING
Q. What happens at the closing?
A. The real estate closing is the final stage in the process
of buying a home. The closing is a
meeting at which the buyer and seller, usually accompanied by their respective
lawyers and real
estate agents, complete the sale. At this meeting, the buyer usually makes
all the required
payments. The seller produces all documents necessary for the transfer
of good--that is,
marketable--title and delivers a deed that transfers the title to the
buyer.
Before the closing, the parties and their lawyers will review all documents
to see that
everyone is fulfilling all conditions and promises of the contract. A
closing statement or settlement sheet is prepared, fully listing the financial
aspects of the closing. The Real Estate Settlement Procedures Act (RESPA)
will apply in any transaction in which a buyer is obtaining a federally
insured mortgage from a financial institution. This requires use of a
settlement sheet developed by the Department of Housing and Urban Development.
In other closings in which the buyer is not obtaining a mortgage, another
form of settlement sheet is usually prepared.
Both buyers and sellers should expect to sign a lot of papers at the closing.
Buyers should expect to sign the following:
• A promissory note promising to pay in full the loan and interest.
• The mortgage document which secures the promissory note by giving
the lender an interest in
the property and the right to take and sell the property--that is, foreclose--if
the mortgage
payments aren't made.
• A truth in lending form which requires the lender to tell you
in advance the approximate
annual percentage rate of the loan over the loan's term.
• A typed loan application form.
• A payment letter telling the buyer the amount of the first payment
and when it is due.
• An affidavit that the buyer's various names (if he or she has
used more than one) all refer to the same person.
• A survey form stating that the buyer has seen and understands
the survey of the property and
that it fairly depicts the property.
• A private mortgage insurance application, usually required on
loans with a down payment of
less than 20 percent.
• A termite inspection or other inspection form, indicating that
the buyer has seen a report of any inspections that were made.
The seller can expect to sign the following documents:
• The deed transferring title in the real estate from the seller
to the buyer.
• A bill of sale transferring ownership of any personal property
that may be included in the sale
of the real estate.
• An affidavit of title in which the seller states that he or she
has the legal right to sell the real
estate and that there are no liens or encumbrances (judgments, mortgages,
or taxes owed) on
the property.
• An affidavit as to mechanic's liens and possession indicating
that the seller has not had any
work done on the property that would give rise to a mechanic's lien and
that there are no
parties other than the seller entitled to possess the property.
• An occupancy certificate indicating that a new home complies with
the local housing code.
Both buyer and seller will also sign the following:
• An affidavit specifying the purchase price and indicating the
source of the purchase price.
(This affidavit assures the lender that the buyer has not received any
undisclosed loans from
the seller that could negatively affect the buyer's ability to repay the
lender's loan.)
• A RESPA form developed by the federal Department of Housing and
Urban Development and sometimes a separate closing statement, specifying
all costs associated with the transaction.
Q. What are some financial aspects of the closing?
A At the time of closing, the seller and buyer will total up various credits
in order to determine
how much money the buyer must pay. The seller will receive credits for
such items as fuel on hand (such as oil in the home heating tank), unused
insurance premiums, prepaid interest, and escrow deposits for insurance,
taxes, and public utility charges such as water and sewer fees. These
credits also will include any other items prepaid by the seller that will
benefit the buyer.
The buyer normally will receive credits for such items as the earnest
money deposited and
taxes or special assessments that the seller has not paid. The settlement
sheet also will specify who is responsible for the payment of various
expenses. These will include the sales commissions and the costs of the
title search, inspections, recording fees, transaction taxes, and the
like. The allocation of such expenses will depend on the terms of your
contract as well as the law and customs in your area. Your real estate
agent or attorney should advise you ahead of time of how much money you
will need at the closing. Typically, you will be required to have a certified
check in the amount required to meet these expenses.
The chart below by no means exhausts the list of fees that might be charged
at closing.
Other common fees include: loan origination fee to cover the lender's
administrative costs in
processing the loan; credit report fee; lender's appraisal fee; mortgage
insurance application fee; mortgage insurance premium; and hazard insurance
premium. Buyers also may have to put money into escrow to assure future
payment of such recurring items as real estate taxes. Also, there often
are separate document fees that cover the preparation of final legal papers
such as the promissory note and mortgage or deed of trust.
Closing Costs
Closing costs usually include all or most of the following:
Appraisal fee This is the fee paid for an appraisal of the property. It
is required by
the lender and often is paid for by the buyer.The Federal Housing Administration
and Veterans Administration establish the appraisal fees for mortgages
that they guarantee.
Attorney's fee The buyer and seller pay the fee for their own lawyers.
In some states, buyers
are required to pay for the lender's attorney. This fee may be a certain
percentage of the mortgage or a fixed fee.
Survey fee If the lender requires a registered survey, the buyer probably
will pay the fee. You may be able to avoid this fee if the lender agrees
to accept a recent survey done for the seller. However, the seller must
sign a document stating that the property lines have not changed since
the completion of the survey and there have been no additional improvements
to the property since the survey was taken.
Even then, a title insurance company may require a new survey unless the
survey is current or has been recertified recently.
Loan discount fee This is the lender's charge to the buyer (points) to
obtain the loan. The buyer may have paid some of this fee in advance to
secure the loan.
Inspection fees Charges for general inspections or inspections required
by local laws. The
buyer or seller may be responsible for these fees depending on the contract
and local law and custom.
Title fees Cost of title search.
Title insurance The cost of title insurance, usually divided between the
seller and buyer. The
seller pays for the buyer's policy and the buyer pays for the lender's
policy.
Recording fees The cost for recording change of ownership such as a deed;
the cost of recording the buyer's mortgage; recording the release of the
seller's mortgage by the seller's lender; and recording the release of
any liens found in the record of title.
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