SURVIVAL GUIDE TO A REAL ESTATE CLOSING
Survival guide to a real estate closing
- The closing is the end of the long and arduous process of buying a house. It refers to the day you close the deal on a piece of property and on the mortgage to buy that home.
- If you are renting, you'll want to schedule the closing around the time your lease ends. If you plan to do some remodeling or repairs on your new home before moving in, choose a date a couple of weeks to a couple of months before you have to move in.
- If you'll be moving out of a house that you are selling, you'll be juggling two closing dates. Most folks need the cash out of the first house to pay for the second house, so schedule the closings in the right order. But beware; two closings in one day will make for a headache.
- Mortgage considerations. Make sure the closing date is set before your lender's interest rate lock -- expires.
- Work schedule. Though most well-run closings last only about an hour, you don't want to try to squeeze this into a lunch break. Things can go wrong.
- Moving. If you plan to move the day you close, schedule the paperwork as early in the day as you can.
- Yearend. If you are scheduling a closing at the end of the year, keep taxes in mind. Any points and interest paid before the New Year can become deductions for this year's taxes. Check with a tax adviser for the timing of any other deductions.
- Most closings are actually two closings. You'll be closing on the purchase of real estate, and you'll be closing on the mortgage loan you are taking to buy that real estate. All that paperwork will have to do with one or the other.
Mortgage documents you can expect to see, read and sign will include:
- Truth in lending statement, also known as Regulation Z. This important piece of paper will disclose the interest rate, annual percentage rate, amount financed and the total cost of the loan over its life. These are important numbers to check and double check before signing.
- Itemization of amount financed. This document is like an addendum to the Truth in Lending statement. It summarizes the finance costs, such as points.
- Monthly payment letter. This document reveals the break down of your monthly payment into principal, interest, taxes, insurance and any other monthly escrows.
- Mortgage. This paper puts a lien on the house as security for the loan -- allowing the bank to foreclose if you default on the note mentioned above.
Then there are the real estate documents that will finally make the house yours.
- HUD or Settlement Statement. The form will contain all the actual settlement costs and amounts. Your Realtor and closing agent will go over this document with the buyer and seller.
- Warranty deed. This is the document that brought all these people to the table. This document should include the names of the buyer, the seller and a description of the property. Often this deed also guarantees that the seller has the right to sell the property. With the signatures of the seller and buyer, this piece of paper transfers the title of property.
- Proration agreements. These describe how you and the seller are divvying up the costs of the house for the month in which it is being bought. For example, the seller may have already paid the property taxes, so the buyer needs to reimburse the seller for the portion of the tax bill that covers the time after the buyer takes over the property. Or in reverse, the seller may not have paid the quarterly homeowner's association fees yet. The buyer will be paying this, but at the closing, the seller reimburses for the period he was still living in the house.
- Tax and utility receipts. You'll probably also be signing various city and state receipts acknowledging that this or that has been paid by the seller or will be paid by the buyer.
- Name affidavit. Here's where too many legal technicalities get annoying. This document is certifying that you are who you say you are.
- Acknowledgment of reports. This assures that the buyer has seen all of the reports regarding the property. These can include surveys and a termite inspection.
- Search of Title. The abstract gives a listing of every document that has been recorded about this particular piece of property. Don't worry, this doesn't obligate you to anything, but it does give you the history of the house.
You should be informed of the amount of money you need before the closing. If you are not, call and ask. You'll want to bring a certified check for the correct amount. And you will need to have the funds in your account long enough for the funds to clear with you try and get a certified check…allow at least 2 weeks.
Here are a few things a buyer will be paying for at the closing:
- Closing costs. Most are negotiable (ahead of time), so closing costs can vary greatly.
- Payment for the house. The buyer brings the down payment (if any) at this time, minus any earlier deposit(s). It is given to the closing agent, along with the lender's check for the balance.
- Escrows. Often the buyer's annual taxes, insurance and other items are paid through the lender. An escrow account (or reserve) will be established at this time.
A closing may be the end of the house hunt and buying process, but it's the opening curtain on your new life as a homeowner.