Consumer Focus

The real estate closing

The term closing refers to the day you close the deal on a piece of real estate and the mortgage to buy that real estate. It transfers the title from seller to buyer, and the settles all monies due. While this can be stressful, preparation ensures that all goes smoothly.


TIMING IS EVERYTHING
When scheduling the transaction, keep in mind the importance of timing. A few things to consider:

  • Work schedule Don't try to squeeze the closing into a lunch break. Things can go wrong. This is a huge day for you, so take at least half day off from work. 
  • Moving If you plan to move the same day, schedule the paperwork early in the day if possible.
  • Keep taxes in mind. Points and interest paid before the New Year are deductions for this year's taxes. Check with a tax adviser on any other deductions.

WHAT ABOUT THE DOCUMENTS?
Buying a home is a big step and the paperwork deserves your careful scrutiny.  Mortgage documents you can expect to read and sign include:

  • Truth in lending statement (Regulation Z) discloses the interest rate, annual percentage rate, amount financed and the loan cost over its life.
  • Itemization of amount financed acts as an addendum to the Truth in Lending statement. It summarizes finance costs such as points.
  • Monthly payment letter breaks down your monthly payment into principal, interest, taxes, insurance and any other monthly escrows.
  • Mortgage document puts a lien on the house as security for the loan - allowing the bank to foreclose if you default on the note.
  • HUD Form 1 or Disclosure/Settlement Statement contains all the settlement costs and amounts.
  • Warranty deed includes the names of buyer and seller and a property description.  It also guarantees that the seller has the right to sell the property.
  • Proration agreements describe how the buyer and seller divide the house costs for the month it is purchased.
  • Tax and utility receipts are signed to acknowledge payment by the seller or that it will be paid by the buyer.
  • Name affidavit certifies that you are who you say you are.
  • Acknowledgment of reports assures that the buyer has seen all reports regarding the property.
  • Search or Abstract of Title lists every document recorded about this piece of property.

How to prepare
A final walk-through or inspection within the 24 hours prior to closing ensures the property is in move-in condition.

What to bring to a closing
The lender's representative tells you. Usually, a driver's license, insurance binder and cashier's check for the down payment and closing costs are required.

CLOSING COSTS

Standard costs associated with the closing process:

  • Down payment
  • Any points (1% of the loan amount) involved in the transaction
  • Attorney fees
  • Title search (a title records check ensures that the seller is the legal property owner and there are no liens or other claims outstanding)
  • Title insurance (protects the lender and/or buyer against loss arising from property ownership disputes)
  • A municipal lien search (determines there are no outstanding legal claims against the property to be paid when it is sold)
  • Appraisal
  • Credit report and a certified plot plan

What other costs are paid at closing?

  • A full year insurance binder
  • Recording fees and transfer charges
  • Any prepaid mortgage interest due for the month in which you close the loan.
  • The first year's premium for mortgage insurance, unless financing on a monthly basis.

The closing process can seem daunting.  However, when you leave the closing with keys to your new home in your pocket, the pride of home ownership will make it all seem worthwhile.