The Closing Opens The Door To Home Ownership.
Completing the purchase of a new home-dotting all the i’s and crossing all the t’s -is called the closing. And whether you’re a first-time homebuyer or have been through this several times before, you’ll find the process is anything but simple. That’s because the paperwork and the legalities can seem endless. You’re going to have to spend what feels like an eternity at the title company, signing and initialing page after page of documents filled with complicated legalese. It can be very intimidating; most people just go ahead and sign, keeping their fingers crossed that everything is fine, that all the legal documents are standard and correct. And that getting the new home is worth the tedium, confusion and hesitation of the “necessary evil” of closing.
If you’re one of those people, however, who’d like to feel more in control and knowledgeable during the closing, we applaud you. Here’s how to start educating yourself.
First, familiarize yourself with a document called a “good-faith estimate.” It’s the most essential, key part of the deal. It projects your closing and mortgage costs. A mortgage lender must supply you with the good-faith estimate within three days of your loan application. The smoothest-flowing closings are the ones where the good-faith estimate closely matches the documents at closing. It shouldn’t be off more than a couple of hundred dollars-unless there’s been some sort of change along the way in the loan application. The goal of anyone putting together the good-faith estimate is “no surprises” in the final closing costs. If the costs are much higher at closing that you were led to expect, stop the closing process and start asking questions. They should be answered to your complete understanding and satisfaction before-or if-you finalize the closing. By the way, the day before you close, the title company should give you a copy of the documents you’ll sign for your review. Read them ahead of time, so that you won’t be caught unprepared or overlook anything at the closing itself.
Second, well in advance of closing, hire an inspector and go along when he or she examines the house. Be prepared to take good notes for yourself; ask the inspector questions so that you understand what any issues or problems might be. You might also want to hire a licensed electrician to look at the home’s wiring and an engineer to look at the foundation. A home is a major purchase. These expert opinions are more than worth your investment in their fees. It’s also a good idea to read final inspection reports thoroughly when you receive them. More than likely, you’ll discover that most inspectors limit their legal liability to the cost of inspection. Also, the report is good only for the day of the inspection.
Third, study the vocabulary, terms, and definitions of closing. Here’s a brief list of the most common ones:
? Title Company: the third party that acts as the accountants of the real estate deal, collecting and disbursing money to the various groups of people involved, including buyers, sellers, banks, and real estate agents.
? Mortgage and Loan Terms Application Fee: Paid when you apply for a loan.
? Points: Equal to 1 percent of the loan value; one point on a $100,000 loan is $1,000.
? Origination Points: It’s common to pay one point (1 percent) to your lender at closing. This charge is for originating and preparing the mortgage loan. If you lender wants more than 1 point, consider looking for another lender!
? Discount Points: Paid to your lender to secure a lower interest rate.
? Annual Percentage Rate: The APR represents the true cost of a loan to the borrower.
? Escrow: Includes homeowners insurance and taxes. It’s common to have this included as a portion of your monthly mortgage payment. Most real estate professionals advise you to have an escrow account. Otherwise, you have to come up with thousands of dollars in taxes at the end of each year.
? Appraisal Fee: Pays for an independent appraiser to evaluate the home you want to buy.
? Title Search: Research of the records for the property you’re buying-including deeds, court records, assessments, and liens-to ensure that you’re purchasing the house from the legal owner.
? Title Insurance: issued by the title company. It protects you against tax liens, unpaid mortgages, or other problems that might come up if the property title comes under dispute.
? Settlement Statement: Also known as the HUD-1 Form, it details and itemizes all the money transfers, fees, and charges involved in the closing.
? Loan Disclosure: Shows all charges, including the origination and discount points. You can also see the total interest paid over the loan term, the monthly payment for principal and interest, and the date when the first payment is due.
? Mortgage Note: The legal contract between the borrower and the lender establishing the borrower’s obligation to repay the loan.
? Deed of Trust: Gives the lender a way to sell the home if the borrower defaults on the mortgage note.
Fourth-and last, keep in mind that buying a home and moving are two of the most stressful events you can experience in life. You can help reduce the pressure on yourself by taking the time to learn about the process. The more you understand, the more confident and calm you will be as you open the door to homeownership.
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