Buying A Home
Your offer has been accepted and you have been approved for a loan. However, there are a few things that need to happen before you can move into your new home. Your mortgage company will suggest a real estate attorney you should use to conduct the closing. You do not have to use the company your mortgage company suggests, but you must use an attorney who has been approved by the title company and the lender in order to close the loan. The attorney will collect the contract, mortgage documents and other information to review and prepare the closing documents. You will be required to provide certain information to the attorney, such as the name of your homeowners insurance company. The attorney or escrow company will review the title to make sure it is clear. The seller or his/her agent will also provide a wood destroying insect infestation report (if required), i.e. termite letter, which shows that the property is free of infestation or damage caused by infestation.
- How do I select a closing date?
Your REALTOR® will help you negotiate a closing date with the seller and attorney's office. Remember that you need to allow enough time for a home inspection, survey, title search and other pre-closing proceedings. Most transactions typically allow a month to accomplish the above tasks before the scheduled date of the closing.
- When can I take possession of the house?
You will agree in the contract with the seller about the time and date when you may take possession of the house. It's also important that you check with your lender to find out the procedures for transferring funds to the attorney. Because a sale is not complete until the funds are received by the attorney and distributed to the seller, you may not be able to take possession of the house immediately. Check with your lender for the process.
- What should I do before the closing date?
There are many things that need to happen in the time before closing. Your REALTOR® and real estate attorney will let you know specifics, but these are some of the things you should expect.
- Obtain homeowners insurance - Your real estate attorney will request this information prior to closing. Typically, an original copy of your homeowners insurance declaration will have to be provided at the closing.
- Obtain a property disclosure form from the seller - The seller should provide you with a Seller Disclosure of Property Condition Form before you sign the contract. This form outlines the condition of the home, including defects, as known to the seller.
- Order a home inspection - Your lender will order an appraisal, which will assess the value of the home to make sure you're paying fair market value for the house. Buyers should hire a professional inspector to examine the house. The inspector will assess the structure and mechanics of the house, including the foundation, roof, doors, windows, ceilings, walls, floors, plumbing, electrical systems, heating, air conditioning, insulation, ventilation, septic tanks, wells and sewer lines. An inspection will point out any problems or potential hazards as well as make suggestions about maintenance. Home inspections are not designed to address cosmetic issues. Inspections are not required by lenders or attorneys but highly recommended. You may include in your contract that the sale is contingent on a satisfactory inspection.
- Order a survey - Lenders typically do not require this, but it's a good idea to have one drawn. A survey locates possible encroachments that may not be visible to the eye. It determines if the home or other structures on the property are violating a boundary line, easement or building setback line, or located in a flood plain. The survey may reveal a legal obligation of the owner to remove a structure or may reveal issues that affect the value of the property. You may state in your contract that the sale is contingent on a satisfactory survey. There are two types of surveys, a mortgage plat survey and a full staked survey.
- Order a lead paint inspection - Many house paints built before 1978 contained lead paint, which can cause significant health problems to infants, children and women of childbearing age. While use of the paint has stopped, many older homes still contain lead paint. If your home was built before 1978, you might want to consider having a lead-based paint inspection particularly if the paint appears to be cracking or chalking.
- Review paperwork - There are so many documents you will be given or asked to sign. It is important that before the closing you review every document. Your REALTOR® or attorney can help you understand the paperwork if you have questions.
- Conduct a final walk-through - Before closing, you should walk through the house one last time to make sure that the agreed-upon repairs were made and that nothing has changed since you made the offer. Make sure that the items you requested to be left with the property are still there.
- Make sure the finances are ready - You should contact your attorney and find out the exact amount of money you need to bring to the closing. You will need to bring your money in the form of certified funds (i.e. cashier's check, wired funds, cash.) Make sure the lender is ready as well.
When you apply for a loan, the lender is required to give you a good faith estimate of the costs associated with the loan. The costs of the following services should be described in that document. Costs usually range from 3 to 5 percent of the loan.
- Sales/broker commission - Typically, the seller will pay the REALTOR® a commission, which is based on a percentage of the sales price.
- Loan origination fee or points - This fee covers the lender's administrative costs. This fee is often expressed as a percentage of the loan and will vary by lender. The buyer may also choose to pay points in order to receive a loan with a lower interest rate.
- Credit report - This fee covers the credit report that was ordered when you applied for the loan. Lenders often collect this fee when they take your loan application.
- Appraisal - An appraiser is hired by the lender, but paid by the buyer, to estimate the value of the home. The appraiser compares the property to others in the area and assesses the physical condition in order to determine the fair market value of the home. Lenders allow you to borrow a percentage of the value of the home. The appraisal helps the lender calculate the loan-to-value ratio (LTV).
- Mortgage insurance (MI or PMI) - A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. Your lender may require that you purchase property mortgage insurance. Usually loans with less than a 20% down payment are required to purchase mortgage insurance. Check with your lender on the terms of your loan. At closing you may have to pay the mortgage insurance application fee as well as the first year's premium.
- Assumption fee - If you are assuming the seller's existing loan, you will have to pay an assumption fee.
- Mortgage broker fee - If you use a mortgage broker, you will pay his or her fee in closing.
- Title services, search and insurance - The title is the paperwork that asserts ownership of the property. Your attorney will complete a title search to insure that there are not any unknown owners of the property and to ascertain outstanding loans or liens on the property. You will pay for title insurance, possibly as part of the attorney fees, which protects your interests and rights as the new owner. The lender has a separate policy, but that does not protect you. The owner's policy will protect you against claims by others against your ownership of the new house. The title search and owner and lender's fees will show up on the HUD-1 form or closing/settlement statement.
- Interest - Your lender may require you to pay the per diem per day interest that will accrue from settlement date to the end of the calendar month.
- Insurance - Beyond mortgage insurance, you will be required to come to the closing with a year's premium of hazard (or homeowners) insurance and flood insurance, if required.
- Escrow deposits - You will make payments for certain services and taxes into an escrow account. These monies are held in an escrow account and are used by the lender to pay the property taxes and insurance premiums as they become due. The escrow account can hold money for hazard insurance, mortgage insurance, city and county property taxes.
- Title charges - This fee includes title search, title examination and title insurance binder.
- Document preparation - Some lenders or title companies charge this fee to cover their cost of preparing the final legal documents.
- Notary fee - This fee is charged for the licensed notary public who swears that the persons who signed the documents actually did.
- Attorney's fees - The lender may require that you pay for your legal services. Sometimes the seller will contribute toward these costs.
- Real estate transfer tax and mortgage recording fee - These taxes, paid by the buyer or the seller, are for legally recording the new deed and mortgage. Fees depend on the government where the property is located.
- Survey and other inspections - You may have to pay other fees as required by the lender, such as a survey, pest inspection and lead-based paint inspection.
What happens on the day of closing?
On the day of closing, you and the seller/buyer will go to your attorneys' offices to complete the paperwork process. You will sign closing statements (or settlement statements) and mortgage documents. Make sure you have read or read that day all of the documents you are signing. There will be many different forms you have to sign. Your REALTOR® will be there to help you. Some of the documents include the following:
- HUD-1 Settlement Sheet itemizes the services provided to you and the fees charged to you. You can review this document one day before the closing if the information has been provided to the real estate attorney.
- Truth in Lending statement gives the terms and costs of your mortgage loan, including loan amount, the interest rate, the total amount of money you will have to pay over the life of the loan, the amount of interest you will have to pay in advance (points) and the annual percentage rate (APR). APR is the actual interest rate you pay when you have the points and interest paid monthly.
- Bank note, which describes how much you owe the bank at the agreed upon interest rate, how it will be repaid and what should happen if you miss a payment. Deed of trust, which is a legal document in which the borrower conveys the title to a 3rd party (trustee) to hold as security for the lender. When the loan is paid in full, the trustee will provide the deed to the borrower. If the borrower defaults on the loan, the trustee will sell the property and pay the lender the mortgage debt.
- After the closing, once the paperwork is signed, the money is transferred and the seller receives his or her check, the keys will be given to the new homeowner. There may be delays due to transferring of paperwork between the seller's attorney and buyer's attorney or the lender.