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CLOSING/SETTLEMENT
After all of the showing, negotiating, inspecting, and moving preparations, the house sales transaction ultimately concludes with the real estate “closing.” This meeting usually takes place at the office of the closing attorney or settlement service provider and generally includes the buyer, seller, and respective real estate agents. Closings can be overwhelming, especially for first-time homebuyers, and can quickly become complicated due to all of the parties involved. Check out closing checklist.
It is not uncommon for a closing to be postponed by several hours, days or more because of unexpected glitches such as missing information. Navigating through a real estate closing can be difficult at times, but if you stay on top of it and keep in contact with the representative at the closing office they will help guide you through the closing process. Below are a few things to keep in mind.
You have accepted your buyer's offer, now your house sale will go through the escrow process (the closing/settlement). This process can last about a month maybe longer depending on how fast the mortgage company processes the buyer’s loan. The Closing/Settlement is either handled by a Real Estate Attorney or An escrow company (or title insurance company) depending on where you live. The Closing/Settlement is the final stage when the transfer of ownership of the property to the buyer from the seller is completed with the signing of all the mortgage paperwork and the transfer of the deed and the recording with the courthouse of the transfer. During the closing/settlement process they will also make sure that the terms of the real estate contract have been met. The charges to the seller are usually about 1-2% of the sales price, although it could be more or less. Some of the charges are paid by the buyer and some are paid by the seller. It varies according to local custom.
In An area that uses Real Estate Attorneys to Close the buyer will select his/her attorney for handling their closing and if in a local that uses title companies the buyer's mortgage company usually chooses the escrow or title company unless you specify a choice in your real estate sales agreement. and you will have your own attorney to protect your interests and to prepare the Deed. Once your house enters the escrow process someone from the attorney’s office or the escrow or title company will call and introduce themselves and will ask if you have any questions. They may also need some information from you. Be sure to get all of their information too such as who is handling the closing, the contact you can call for updates and phone numbers.
After the completion of all of their paperwork they will call to give you a final date and time for closing.
As the Seller, you should have already selected an attorney to handle your closing. If you do not already have a family attorney make some calls to REAL ESTATE attorneys in your area and interview a few and find someone you feel comfortable with and who you feel will represent your interests. See: Interviewing a retaining your attorney in the section Create Your Team or see the list of questions in the E-Book available for download for just $9.95.
Because the buyer does not have an agent it is not a bad idea to give the Buyer this list of what they should bring to the closing:
What to Bring to Your Closing:
* A certified or cashier’s check payable to the attorney for the balance of the down payment and his closing costs.
* His regular check book so that he can pay any incidental costs.
* His homeowner’s insurance policy and paid receipt for one year’s coverage if the closing agent has not already received the binder from buyer’s insurance company prior to closing. (typically the binder should have been sent to closing agent before the closing date.)
At the closing the Attorney or Agent will go over a list of adjustments presented on government-standard “Settlement Statements”, to reconcile what the buyer and what you the seller owe one another in cash, taxes, etc. You the seller will sign the deed and the Buyer will sign the Deed of Trust Note (mortgage obligation instrument) denoting terms of paying back money to purchase house.
They buyer will sign all of their paperwork and receive the keys.
You will receive your check from the attorney or closing agent after the Deed and Deed of Trust have been recorded and the sale is finalized.
Common Closing Costs for Buyers The mortgage lender must provide a “good faith estimate” of all settlement costs, which is a basic approximation of the money you will need at closing. Keep in mind, however, the estimate is just that. Be prepared for last minute changes or jumps in your closing fees. Plan ahead and remember that the check to cover your closing costs will probably have to be a cashier’s check. Your attorney or settlement service firm conducting the closing will tell you the required amount for:
Down payment;
Loan origination fees;
Points or loan discount fees you pay to receive a lower interest rate;
Appraisal fee;
Credit report;
Private mortgage insurance (PMI) premium;
Insurance escrow for homeowners insurance, if being paid as part of the mortgage;
Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then they pay the insurance or taxes on your behalf;
Deed recording fees;
Title insurance policy premiums;
Survey;
Inspection fees—building inspection, termites, etc;
Notary fees; and
Pro-rations for your share of costs such as utility bills and property taxes.
Understanding the HUD-1 Settlement Statement (from the HUD web site)
The HUD-1 is a form used by the settlement agent (also called the closing agent) to itemize all charges imposed upon a borrower and seller for a real estate transaction. It gives each party a complete list of their incoming and outgoing funds.
Fees associated with the transaction but paid prior to closing are also included on the HUD. They are normally marked "POC," for Paid Outside of Closing.
When is the HUD-1 Used?
The statutes of the Real Estate Settlement Procedures Act (RESPA) require the form be used as the standard real estate settlement form in all transactions in the United States which involve federally related mortgage loans. Where I work, it's used for nearly all transactions that involve a buyer and seller, including cash closings.
When is the HUD-1 Distributed?
RESPA states you should be given a copy of the HUD-1 at least one day prior to settlement. In real life, entries may still be coming in a few hours before closing. Most buyers and sellers study the statement on their own, with their real estate agent, and with the settlement agent. The more people who review it, the more likely that errors will be detected.
Don't assume that the closing agent is always correct. Mistakes happen. I've been in more than one closing where an error was found at the last minute. Ask as many questions as necessary to help you understand all charges.
Line by line description
Section L, Settlement Charges
If you printed the HUD-1, flip to Section L on page 2. That's where many entries are tabulated before being brought forward to page 1. Columns contain charges that are paid from either the borrower's or the seller's funds. Your closing statement probably won't have entries in all lines.
Section 700, Agency Commissions
This section deals with the commission paid to real estate agencies. Lines 701 and 702 show how commissions are split between two participating agencies.
Commissions are usually paid from the seller's funds. However, a buyer's agent who sells a for-sale-by-owner home may be paid by his or her client, not the seller.
Section 800, Items Payable in Connection with Loan
The entries on these lines are most often paid from the buyer's funds, although in some cases sellers agree to pay specified amounts to help the buyer close.
Line 801 shows the fee the lender charged for processing or originating the loan. If the fee is a percentage of the loan amount, the percentage will be stated.
Line 802 is used to record the "points" charged by the lender. Each point is 1% of the loan amount.
Line 803 is used to record appraisal fees. You may have paid the fee when you applied for the loan. If so, it should be marked "POC," for paid outside of closing. The amount would be shown, but would not be included in the total fees you bring to settlement.
Line 804 is used to record the cost of the credit report if it is not included in the Origination Fee.
Line 805 includes charges for inspections done at the request of the lender. Other pest and structural inspections are recorded in another area.
Line 806 is for an application fee that might be required by a Private Mortgage Insurance (PMI) company.
Line 807 is only used for loan assumption transactions, where the buyer takes over the seller's existing mortgage.
Lines 808 to 811 are used for miscellaneous items connected with the loan, such as fees paid to a mortgage broker.
Section 900
Items Required by Lender to be Paid in Advance These charges are typically paid by the buyer. They are all items which the lender requires, but which are not always paid to the lender.
Line 901 is used to record interest that is collected at settlement for the time period between closing and the first monthly payment.
Line 902 shows mortgage insurance premiums that are due at settlement. Escrow reserves for mortgage insurance are recorded later. If your mortgage insurance is a lump sum payment good for the life of the loan it should be noted.
Line 903 is used to record hazard insurance premiums that must be paid at settlement in order to have immediate insurance on the property. It is not used for insurance reserves that will go into escrow.
Lines 904 and 905 are for miscellaneous items, such as flood insurance, mortgage life insurance, credit life insurance and disability insurance premiums.
Section 1000 Reserves Deposited with Lender This section is used to itemize escrow funds collected by the lender from the borrower for such things as hazard insurance and property taxes. The number of months charged varies, but there are limits as to how much the lender can collect.
The borrower paid current charges for the expenses in Section 900. The entries on lines 1001-1007 are for funds used to start the borrower's escrow account, from which the lender will pay next year's premiums. Each mortgage payment includes an amount that covers a portion of these recurring expenses.
Line 1008 is an escrow adjustment calculated by the settlement agent by comparing different escrow formulas. This step is to make sure the lender is not collecting more escrow funds than are allowed. The figure is always zero or a negative number.
Visit the HUD government web site.
Just click the links below:
HUD's Office of Public Affairs (OPA) strives to educate and keep the American people informed about the Department's mission to sustain homeownership, support community development and increase access to affordable housing free from discrimination. By pursuing media outreach, OPA works to ensure homeowners, renters, and those living in subsidized housing hear directly from key officials about the Department's latest initiatives and goals. Using communications tools such as press releases, press conferences, the Internet, media interviews, New Media and community outreach, OPA provides Americans with information about housing policies and programs that are important to them.
You will find information about buying, Owning, Selling, Renting, Home Improvements, HUD homes, Fair Housing, FHA refunds, Foreclosrues, and Tons of Consumer Information
Check out a sample settlement statement
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