An Abstract of Title
(Title Report) is prepared showing a brief history of the ownership
and any legal documents that effect title.
What Conditions Do You Want To
Place On Your
Buying The House?
When you commit to buy the house by creating an offer,
you may make that commitment contingent upon certain things happening, such as your
securing financing for the home. In a similar vein, you may make the purchase conditional
upon your being able to sell your home by a certain time and under certain terms.
You will also want to make sure the house is in good shape. You may
make the contract subject to your being satisfied with a building inspector's report
and/or an inspection for termites. The purchase should also be subject to your being
satisfied with your own inspection of the house just prior to closing.
What Are You Buying?
The contract should spell out everything that is part of
the purchase that may not be clearly part of the real estate. Common items that could
cause questions include appliances, light fixtures (such as the chandelier in the dining
room), shades, blinds, curtains and rods, screens, shelving or cabinets, potted flowers,
shrubs and trees, or perhaps a swing set that is cemented down.
What Special Provisions Should Be Included?
Most contracts of sale include some standard provisions,
such as one for property taxes, insurance costs, utility bills, and special assessments to
be prorated at closing between buyer and seller. Others outline particulars about what
happens if the property is damaged before closing or if the seller or buyer fails to go
through with the sale. I will review all the small print with you.
You may want to add your own special provisions. For example, you
may want a new home builder to provide you with home warranty insurance at no cost to you.
When Should Closing Be and When Do You Take
Possession?
The contract will have a place to write in the time when
you will take physical possession of the house. If you can't go through with the purchase
if the closing doesn't take place by a certain time, the contract should say "time is
of the essence". This statement binds you too, so be sure you can fulfill your part
of the contract by the stated date.
The Settlement Process
All the pieces start coming together. Your lender has
approved your loan. Except for the seller's paying off the existing mortgage, the title is
clear. The property inspector you hired has submitted a report and finds no major
structural or mechanical flaws with the house. You, me (your Realtor), and the seller's
agent have completed a "walk-through", a final inspection of the property. (The
walk-through inspection assures you that no damage has occurred since the property
inspector looked over your house or that work you specified in the contract was completed.
With new homes, you'll often find details that aren't completed when you made the offer,
so they were listed in the contract to be completed before closing.)
What Are All Those Closing Costs?
Either the day you applied for your loan or within three
day afterward, you should have received from your lender a "good faith estimate"
of the fees charged for closing. This good faith estimate includes fees charged not only
by the lender, but all parties involved.
The uniform settlement sheet you receive at closing will be divided
into categories so that it's easier to see what the charges are related to. For example,
some of the categories are: payments connected with the loan, the title, money that must
be placed in escrow with the lender, money that must be paid in advance to the lender, the
broker's commission, recording fees, and document preparation fees.
In your contract, you and the seller agree who will pay what and
although it's likely you won't be paying all the closing costs, here's a general rundown on what some of those
costs include:
Charges Related To The Loan
The loan origination fee covers the lender's
administrative costs. The loan discount, referred to as points (each point being equal to
1 percent of the loan amount), is extra interest paid to the lender to make up the
difference between market interest and the interest of the loan.
Other charges will most likely include an appraisal fee (to make
sure the house is worth what you're paying for it - thereby assuring the lender that the
house has enough value to cover the loan amount), and a credit report. If you are required
to pay PMI (Private Mortgage Insurance for less than 20% down), a charge will be included
since the lender obtains the insurance for you. If you are assuming the seller's mortgage
rather than getting a new loan, an assumption fee will be listed.
Items Paid In Advance To The Lender
Items paid in advance generally include mortgage interest
(from the closing date to the date your first payment is due), the first year's hazard
insurance, and, if required, the first year's PMI premium.
Deposits Or Reserves With The Lender
Reserves are extra amounts collected (usually 2 months)
for hazard insurance, property taxes (depends on the time of year you close the
transaction), and PMI (if required). They are collected when these items are to be paid as
part of your monthly payment. If you are buying a condominium or townhouse, you may also
have to pay some portion of the homeowner's association fees.
Title Charges
Title charges include fees for the title search and fees
for preparing the documents for closing and transfer of title. There will be a one time
fee/premium for the owner's title insurance and a one time fee/premium for the lenders
title insurance. For more information, see What is Escrow?
Recording And Transfer Charges
These fees are for recording the Deed of Trust (mortgage)
and the general warranty deed. There may also be transfer taxes which are fees for transferring property, and notary
fees.
Closing
Before closing, any issues (such as problems you found
during the walk through) should be resolved. The closing becomes a formality in which your
Title/Escrow officer will explain each paper and then will ask you to review and sign it.
As a buyer, you'll sign a note in which you agree to pay back the
mortgage loan and pledge the house as security until it is paid off. You'll also sign a
number of other papers that are required as acknowledgments that you have received all the
information you should have about the loan and the transaction. Don't be surprised if some
of the documents seem repetitive.
