Closings: A Home-Buyers Seminar
Also: Title Insurance-Plain and Simple
Also: Property Ownership-The Whole Story
Also: Guide to Title Insurance Fees and Costs
Preparing for closing is stressful for both the buyer
and seller. The Seller is anxious for the sale to go through,
while the Buyer has second thoughts about taking on a large
debt. You as the Buyer should keep in mind that once the sales
contract and loan commitment letter have been signed and accepted,
and you fail to follow the transaction through, you will lose
your deposit and face possible litigation (a lawsuit).
Setting the Closing Date
The Lender and your agent may set a tentative Closing Date.
The Closing Date is set after the loan has been approved and
the Buyer's commitment letter accepted. The Buyer must make
sure the closing takes place before the Lender's commitment
expires and the Buyer's rate lock expires which is usually
either 30, 60, 90 or days.
Securing Title Services
Generally, your attorney, real estate agent or lender will
assist you in selecting a title company. Closings may be held
at your attorney's office, lender's office, realtor's office,
or title company.
The Lender requires a title search for both your protection
and theirs. A title search prevents fraudulent sales (i.e.,
from bad marriages, wayward kids, etc.). It makes sure the
seller is the property owner and has the legal right to sell
the property. A title search uncovers any encumbrances on
the title, such as liens by creditors. These liens must be
paid before or at closing.
Title insurance affirms that the seller is conveying marketable
(e.g., free of all claims, rights of others and potential
litigation) property. There are two types of title insurance
policies: Lender's and Owner's. Generally, the Buyer pays
the cost of both types of policies; combining both policy
types (lender's and owner's) can save money.
Types of Ownership
The names appearing on the deed are generally those whose
names that are on the mortgage. There are four types of ownership
highlighted below. Examine these closely to better understand
the various options that are available for those seeking homeownership.
Please contact Collegiate Title Corporation on the options
available in your particular state.
- Sole Ownership is property is in the name
of one party.
- Tenancy by the Entirety is conveyance to
husband and wife only. Neither spouse can sever, alienate
or affect the marital property without the consent of the
other party. In this type of ownership, if one spouse dies,
the property automatically goes to the surviving spouse without
going probate (a legal process of distributing property after
- Joint Tenancy is where any of the owners
may sell their interest to anyone during their lifetime. If
one owner dies, the surviving owner(s) automatically get the
deceased owner's share in the property.
- Tenancy in Common means that the property
is owned jointly between parties. However, if one owner dies,
the deceased owner's share goes to his or her heirs rather
than the surviving owner(s).
Homeowner's warranty is a warranty that protects against certain
defects in the home. This kind of warranty is usually offered
on new homes, although now it is offered for older homes.
The covers the Buyer for major house systems during the first
year of ownership.
Final Estimate of Closing Costs
The Lender is required to provide the Buyer with an estimate
of closing costs soon after Buyer has filed the application.
Estimates are subject to change, and you have the right to
review the Settlement Sheet (HUD-1) one business day before
closing. The Estimate is sometimes called the Good Faith
Estimate. The Buyer is required to pay the remainder of the
down payment(minus the deposit) and closing costs with a
Cashier's Check. Personal checks are usually not accepted.
Most often, the closing is a formal meeting between all parties
(i.e., Buyer(s), Seller(s), listing agent, and lender). It
is recommended that you have an attorney represent you at
closing to read and interpret the documents, and advise you
on exactly what you are signing. Note that the closing agent
is not allowed to give you legal council. You should bring
proper identification (photo driver's license, passport, etc.).
Once you sign the documents and pay the closing cost, you
get the keys to the property (if applicable).
Actual Closing Costs
The Bottom Line on the settlement sheet begins with the sales
price, plus total Buyer's closing costs, plus any pro-rations
payable by Buyer, minus the Buyer's deposit, minus the principal
amount of the mortgage, minus any adjustments payable by Seller,
equals the amount the Buyer pays at settlement.
The HUD-1 Settlement Statement is a form required by law which
itemizes the services provided. It lists charges to both Buyer
and Seller. The settlement agent completes the HUD-1, which
the Buyer and Seller both must sign.
The Lender's Closing Costs
- A deed is a conveying instrument, given to
pass title from the seller to the buyer. The Seller must bring
the deed to the closing, properly signed and notarized.
- The Truth in Lending Statement is a part of
the Consumer Credit Protection Act, which is Federal legislation
designed to protect borrowers by requiring lenders to furnish
information about the cost of the loan. The law calls for interest
to be expressed as the annual percentage rate (APR) to the nearest
1/8th of one per cent. The APR must include charges such as loan fees, discount points, servicing fees, etc., as well as interest. The law
applies to 1 to 4 family residential property only.
- The Note is given to the lender by the
borrower and is their written promise to pay back the mortgage
by a certain date. This is signed by the borrower then sent back
to the lender for them to hold.
- The Mortgage is also held by the lender. This
creates a lien on the property which must be paid one way or another.
If the borrower does not pay the their mortgage company, this enables
the lender to take the property through foreclosure.
- Affidavits of Title are oaths given by the buyer
and seller to say that they are the only people with an interest in
the property, to the best of their knowledge. This means for the seller
that all liens are being satisfied on the closing date and there are no
judgments or other liens against the property that are not disclosed.
If there is an open lien against the property the seller did not disclose, legal action can and will be taken against the seller
through the Affidavit of Title.
The lender will charge various fees in connection with giving a loan.
Some of the common charges will be explained below.
- The Loan Origination Fee covers
administrative cost of processing a loan. May be expressed
as a percentage (%) of the loan amount (e.g., 1%). Loan
Discount Points are charged by the Lender to adjust the
yield (ratio of income from an investment to the total
cost of the investment over a given period of time), on
the loan to market conditions. Each point equals 1% of the
- The Appraisal Fee pays for the appraisal.
An appraisal is the act of setting a value on the property.
The lender has to confirm that the appraised value of the
property is enough to cover the loan.
- Credit Report Fee
- An Assumption Fee is charged for
taking over the payments of the seller's existing loan
- Advance Payments include two types:
- Pre-paids-Lender requires payments at settlement
- Interest-Buyer pays on mortgage from date of settlement
to period covered by the first payments.
- Mortgage Insurance Premiums (MIP) protects
the Lender against loss incurred by mortgage defaults. Enables
the Lender to lend a higher percentage of the sale price.
Lender may require first year premium or lump sum at closing.
- Hazard Insurance Premiums
Escrow Account or Reserves are required if Lender is paying
property taxes, Mortgage Insurance, or hazard insurance.
Title Charges include:
Additional Charges include:
- Settlement/Closing Fee
- Search/title insurance premiums
- Attorney fees (legal services for the
Lender); do not include Buyer's or Seller's attorneys.
- Recording Fees are items such as Transfer
Tax, and the fees charged by the county for recording the deed and mortgage.
Adjustments may include Items paid in advance
by Seller that are reimbursed by Buyer or vice versa.
- Surveyor Fees
- Termite and Pest Inspection
- Other lender-required inspections
For more information about closing costs and the HUD-1, please
read our Guide to Title Insurance Fees
Return to the Title Insurance Guide