Chapter 14 - The Closing

The day finally arrives when you get to the closing of your first home. It is up to the seller (usually the sellerfs attorney) to pick the place where the closing will take place. This is usually at a title company, but in some cases, it can be at the office of the sellerfs attorney and an escrow office will travel to the attorney. This all depends on the title company that is used.

Prior to the closing, you will need to contact the title company and find out how much money you should bring to the closing. In an ideal world, they would contact you a day or two ahead of time. In the real world, you will be calling them up until 5:00 p.m. the night before your closing which is 9 a.m. the next morning to get the amount that you need to bring in. If you have an attorney, the attorney should be finding this information out for you.

Once you understand how much you need to bring in, you will have to go to the bank and get a cashierfs check for the amount. The title company will not take a personal check. You can have the check made out to yourself so you can just endorse it over to the title company at the closing.

You also need to bring a photo ID and proof of homeownerfs insurance to the closing. You should get a receipt and an insurance rider from your agent that proves you have homeownerfs insurance on the house.

At the closing, you will have to sign a series of documents. This includes the lenderfs documents, which are usually in a large stack, and the title documents. The lenderfs documents usually include a lot of legal forms, most of which pretty much state that you give them the right to make any corrections or agree to sign again if there are corrections needed. You will also have to sign the Truth in Lending Form, the Mortgage and the Note. The mortgage and note are recorded instruments and must be signed exactly as stated. The Truth In Lending gives you the total amount that you will be paying back in interest as well as a higher interest rate because it is the compounded daily rate. It is a very scary form and is also required to be mailed to you prior to the closing. You will also sign a typed up application.

If you have a common surname, you will probably have to fill out an affidavit stating that you are who you say you are. This is because there are probably a lot of people with your name who have liens and judgments against them and you do not want to be confused with them. This is a standard form.

Closing documents will be the HUD-1, the sellerfs closing statement and the tax transfer forms. Most states and counties and some municipalities require the seller to pay a tax whenever the property is sold or transferred as a way to collect more revenue.

You will get an Affidavit of Title which is proof that you purchased the property. You will not receive the deed as it will have to be recorded and will be mailed back to you after recording. The affidavit of title is the deed until then.

You will also get a Bill of Sale. This is for all of the things that you are buying that are not technically part of the house. These are usually listed on the contract and include things like appliances, draperies, ceiling fans and garage door openers. In some cases, people have other items that are sold with the house and some real estate agents go overboard and write down things like gwall to wall carpeting.

Copies of all the lenderfs documents will be provided to you along with the copy of the closing documents. You do not need copies of the tax transfer forms or anything else that you are not paying for. What you want to take away from the closing are the following:

ｷThe original Affidavit of Title signed by the seller (you do not sign this document)

ｷThe original Bill of Sale signed by the seller (you may sign this document)

ｷOne of the original HUD-1 forms singed by both you, the seller and the escrow officer

ｷOne of the original Sellerfs closing statementfs signed by you and the seller

ｷThe title commitment with the intent of getting a policy in the mail

ｷA copy of all of your lenderfs documents including the mortgage and note

ｷThe survey

ｷThe appraisal

ｷAny other pertaining documents (condominium bylaws, etc.)

ｷGarage door openers

ｷKeys to the house

Once you have received the keys, the closing is over. You can pay your attorney by check or you can include his or her fee in the settlement statement. If you are getting an FHA or VA mortgage, you will have to pay him outside of closing.

Your mortgage is paid in arrears. This means that it will be due on the first of the month for the month that preceded it. If you close on April 15th, the amount from April 16thto April 30thwill be included in your settlement charges. Your first mortgage payment will then be due on June 1st(for May). This gives you time to get yourself established. You should seriously consider having your mortgage taken out of your checking account each month. Although the mortgage is due on the 1stof the month, you have a 15 day grace period. This means that you can wait until June 15thto pay your May mortgage. However, if the 15thfalls on a Sunday or Holiday, some lenders will penalize you for making a late payment if you pay on the 16th.

It is not difficult to own a home. It is not only easy to purchase a home, especially in todayfs market, it is a good investment. If you follow the instructions in this book, you will have not only provided yourself with shelter which you need anyway, but also made a solid investment that will continue to accumulate in value for the years to come. You will also have given yourself a tax break as well. The interest that you will pay on your mortgage can be deducted from your income tax as well as the property taxes. Any points or closing costs can be deducted for the year that you closed on the property.

Good luck in buying your first home!

Chapter 13 - The HUD-1

The HUD-1 is the settlement statement that is provided at the closing. It is also referred to as a RESPA or a closing statement, depending on what region of the country in which you live. This is a pretty standard form that lists all of the fees, tax prorations, escrows, earnest money and just about every fee that is related to the purchase of the property.

There is a sellerfs side to this statement and a buyerfs side. Both sides must balance. The buyer has debits and credits and the so does the seller. As a buyer, you will have the purchase price of the home and settlement and mortgage charges as your debits. If you live in a state where taxes are paid in arrears, you will have a tax proration for a credit as well as be credited with the amount of the mortgage and earnest money.

Settlement charges will include the fee to close the property, which is also called the escrow fee. This is generally paid for by the buyer. In most states, the seller pays all transfer tax stamps for the state, county and, if applicable, the municipality. In some states, the seller and buyer split this fee. This would be included in the settlement statement.

You should not have to pay more than $150 for the escrow closing. You can negotiate this with the seller, too. You can ask in your contract that the seller pay any and all fees related to closing.

Also included in the settlement charges will be the fee for the lenderfs title policy. This can be a few hundred dollars and is determined by the price of the home. This is buyerfs cost because you are the one who is choosing to get a mortgage.

Mortgage fees can add up. You will have the application fee, points (if any) and miscellaneous document preparation fees. THESE ARE NEGOTIABLE. This cannot be stressed enough. Lenders are cutting each otherfs throats to write mortgages. Negotiate the fees.

Lenders can fee you to death - especially if you are going to a secondary mortgage house. You will be paying an underwriting fee, document fees, application fees, credit check fees, etc. Tell the lender that you want to know the fees upfront. This way, you are not surprised when you get to the closing table and see how much money you are paying in fees.

The lender will probably also escrow for your taxes and insurance. They usually take 6 months worth of taxes to put in escrow as they will be paying your real estate taxes. They also take one yearfs worth of homeownerfs insurance premium. This will sit in an escrow account from which the payments will be made. This is not mandatory that you have the lender escrow for taxes and insurance. If you have 20 percent equity in the home, you can pay this yourself.

The HUD-1 will be presented to you at the closing. It will actually be prepared prior to the closing by the title company. The escrow officer will give you a copy of the HUD-1 for your file. You have a right to question anything on this statement, but will have to sign the statement before the funds are disbursed.

Chapter 12 - The Survey

You should take a look at the survey of the property and make sure that the metes and bounds legal description matches that on the title commitment. You should also be able to see how the house is situated on the survey plat and if there are any encroachments on the property.

The survey is ordered and paid for by the seller and is something that the lender and title company will require. The sellerfs attorney has a responsibility to give you a copy of the survey prior to the closing if you are representing yourself. If you have an attorney representing you, the sellerfs attorney should give him or her the survey.

Your real estate agent cannot go over the survey with you and give you any sort of legal advice. If there is something wrong with the survey, your lender should catch it. But they might not. This is why it is important to either have knowledge of surveys and real estate law or hire someone to help you out who does have some knowledge.

Chapter 11 - The Title Insurance

The title insurance is like insurance that you have on your car. In this case, an underwriter is insuring that the house that you are buying is indeed the house that you are buying and that the sellers have the right to sell it to you. It is also insuring that the taxes have been paid and that there are no liens or encumbrances on the property.

The seller has the obligation to give you a title insurance policy called and gOwnerfs Policy.h This is a policy that will state your name as the owner, the legal description of the property (which is different than the address) and the tax number for the property. It will also state any exceptions on the policy. This is what is important as you want to make sure that there are no encumbrances. These would be brought up in the exceptions portion of the title.

To learn about tile insurance can take all day. Your lender will also be getting a title insurance policy that you will pay for. It is called the glenderfs policy.h It will insure their interest but have the same exceptions that you will have on yours. If there is anything amiss, the lender will want it removed from the title policy or insured over.

Some things that can be wrong with the title include:

Liens on the property. If the owner did not cut the grass and the municipality assessed a fine, it will be a lien on the property. If the owner purchased new siding and didn’t pay the installer, a lien will be on the property. You do not want these liens being on the property so you will tell the seller’s attorney to have them removed before you take title. You are entitled to clear title to the land, without liens.

Seller not of record. This means that the seller does not have the right to sell the property. The only way of knowing who is in title to the property is search the recorded deeds. This will give you the owners of the property all the way back until the property was built. The title company will reflect the current owner and if it is not the person who signed the contract, they will have to prove that they are legally entitled to sell the property.

Taxes not paid. Again, you are entitled to have clear title with paid taxes. The seller will have to provide proof of payment or the taxes will have to be paid from the proceeds of the sale.

Encroachment. This shows up on the survey and on the title. This means that there is something encroaching on the property. It can be as simple as a neighbor’s fence or something as serious as a neighbor’s garage. It makes a difference if it is a permanent structure or a removable structure. The title insurance company will not insure the property that is encroaching on your property. This is the seller’s problem and they will have to ask for an endorsement over the encroachment.

Covenants and Restrictions. If these have been recorded against the property, you need to find out what they are and what they restrict. Some of the restrictions that can affect your ownership of the property would be if you could not have a shed outside, cannot park a boat or truck in the driveway, cannot erect a fence, cannot put on an addition, or other factors that can restrict your use of the property. You should get a copy of the recorded instrument so you can see what, if anything, will affect you.

Mortgage on the property. All existing mortgages should be paid off before you take possession of the property. When a mortgage is paid off, the owner is sent a release of mortgage. This document is supposed to be recorded in the country where the property is located, but many people do not follow these instructions. There may be a mortgage on the property that is old and does not even belong to the current owners. Again, it is up to the seller to remove this from the property.

If you are unfamiliar with title insurance, you should have an attorney look over the title commitment. Even if you do not have the attorney come with you to the closing, he or she can at least take a look at the title for a lower fee.

Chapter 10 - Getting Your Financing Set

Once you are set on the purchase of your home and the contract has been approved by the seller, you must then forward the contract to your lender who will schedule an appraisal of the house. The appraisal usually does not take a long time and will determine the value of the house based on comparisons in the area.

You should also schedule your home inspection. If you are using a real estate agent, ask them to do this for you.

Your responsibility is to schedule the real estate inspection and get your financing situation. It is the responsibility of the lender to schedule the appraisal.

The seller will have the responsibility of ordering a title commitment and a survey. If the property is a condominium, no survey is required. You are entitled to a copy of the title commitment and survey prior to closing for review. If you are using an attorney, your attorney will get the title commitment and be able to review it for you.

Your real estate agent cannot act as your attorney and review title. Neither can your lender. When you go to the closing (usually held at a title company) , the escrow officer who facilitates your closing cannot give you any legal advice or explain any documents to you. If you are unsure about signing documents, you should hire an attorney.

You should be aware, however, that if you are getting a mortgage, your lender will review the title commitment and survey and make sure that everything is in good shape before proceeding. Your lender has just as much on the line as you do when it comes to the deal. In some cases, they may have more.

To get your financing set, you will need to provide your lender with documentation about the money that you are planning to use for a down payment. This entails a bank statement. If the money is a loan from a family member, you need to provide a gift letter stating that the money is a gift and they do not want to be paid back.

You are also going to need two yearfs worth of tax returns and recent pay stubs for any and all income you are claiming towards your loan. In other words, you have to prove that you can afford to buy the house and pay for it.

You will also need employment verification. This means a letter from your employer stating that you work at the company and should be there for the next 12 months. This is a pre-set form that your employer completes and faxes back to the loan company.

Depending on the lender, you will need three to six months worth of bank statements. A computer print out is fine. This should reflect your income and bills.

If you are going gno doch this means you will not need employment verification, bank statements or tax returns. The lender will still run a credit check. If you have items on your credit report that need explanations, you will have to provide the lender with written letters or documentation. If there is something on your credit that does not belong to you, you will have to sign an affidavit that states this is not your item and show proof of a dispute with the credit bureau.

If you just deposited $10,000 in your bank account, the lender is going to want to know where that money came from. Lenders are getting very strict, especially when it comes to large sums of cash being deposited into a bank account. This is partly due to new regulation passed with the Patriot Act.

Once the lender has all of the paperwork, they will submit your file to underwriting and you will get a formal approval. If you have been pre-approved, this means that you have submitted all of the paperwork and they only need the appraisal, title commitment and contract before they will issue a formal approval. Once you have been formally approved by the lender, you are ready to close.

Chapter 9 - The Real Estate Contract

There are a few things you need to know about the real estate contract. This is generally a form that gets filled in by the real estate agent. You will have to name a price that you wish to offer and the amount of money that you plan to borrow. The earnest money is usually a small percentage of the amount of the contract and, when making an ordinary offer, it paid upon acceptance of the contract. If paid on a foreclosure, it is due at the time the contract is presented.

There are usually two contingencies that a real estate contract will require. One is that the home appraisal meets the price of the home. This is usually built in to the real estate contract but you will want to be sure that it is added into your contract if it is not already there.

There is also a contingency for title insurance. This means that the seller must provide the buyer with a title insurance policy that will insure that the seller is able to sell the house and that the buyer purchased the correct property.

Other contingencies that exist with a contract are those for financing. This is usually filled in on a contract and gives the buyer 30 days or so to get approved for financing. If you have a pre-approval letter, you can skip the financing contingency, although you are always better off to have this as part of the contract in case you want an gout.h

You should also have a contingency for a home inspection. This is important even if you are buying a new home. The house should pass the home inspection and show no significant structural damage. This can be worded in the contract. It also gives you an gouth if you want to get out of the contract for some reason. Housing inspections are rarely perfect, if ever, and there is bound to be some fault with the home, such as the faucet leeks. If your contract is contingent on passing the home inspection, you can ask that the seller fix every little thing on the inspectorfs report or get out the of the contract.

Another contingency you may want is the attorney review contingency. This gives your attorney some time (usually three days) to review the signed contract. This does not go into effect until the contract is signed by both parties. The attorney cannot adjust the price.

Other aspects of the real estate contract include the items that are being sold with the house as well as tax prorations and closing costs. There will also be a time element involved in the contract so that you cannot linger forever upon closing. The seller gets to pick the place where the title insurance will be purchased and where the closing will take place.

Another contingency that is sometimes seen in real estate contracts is a gcontingent on saleh or gcontingent on close.h If a buyer has another house to sell or is waiting for their house to close, a rider is attached that gives the buyer a certain amount of time (usually 90 days) to sell or close (usually 30 days) on a house.

As the buyer, you will be the first to sign the real estate contract and then your agent will present it to the agent of the seller. If approved, the seller will sign it and you will each get a copy (the contracts are usually signed in duplicate).

The seller has three choices when presented with your contract. He or she can refuse the offer by simply not signing the contract, they can counter-offer at a higher price by crossing off your price, adding their own and initially, while signing the contract, or they can accept the contract as is and sign it. They can also make any other changes in the contract as long as they initial the changes. The contract then comes back to you. You can either accept the changes, tell them the deal is off, or make further changes, initial and sign again. In some cases, the contract goes back and forth a few times before it is fully negotiated between the buyer and seller. Rare is the case when a contract is not amended in any way.

Once the deal is set, you are then ready to start the closing process.

Chapter 8 - Making An Offer

Once you have found the home that you want and are ready to make an offer, you should consider the following:

ｷHow long has the home been on the market?

ｷWhy is the seller moving?

ｷHow many other homes like this are also on the market?

All three of the above criteria are important because the affect the price that you can offer the seller. Let’s take them one step at a time and see why they are so important:

How long has the home been on the market?

If the home has just been listed, chances are that the seller is going to want to wait it out a bit to see if someone will come in with a good offer. They are not likely to take the first offer that comes along if it is lower than the asking price. And in this market, you want to be able to offer significantly lower than the asking price.

If the home has been on the market for a long time (in this market, that is greater than 9 months) than chances are that there is something wrong with the property (such as structural damage) or that they just won’t budge off their asking price. You can try to make an offer, but chances are that you are not the first to do so and that they will not take a low offer. In today’s market, you should take at least 10 percent off of the asking price in your offer.

Why is the seller moving?

If the seller has already vacated the house, and it has been vacant for a while, it may be that the seller has already relocated and is not in a hurry to sell. If the seller is still living in the house, you should note why the seller is selling.

There are a number of different reasons why a seller decides to sell a house. They should all have the following significance to you:

Empty nesters. Their children are grown and they are downsizing. This means that they can afford to wait it out a bit and you’re probably not going to get the deal of the century. They’ve probably paid off the mortgage and want the biggest profit they can get.

Transferred. This means that they have to get out within a certain period of time. They are more apt to make a deal.

Divorce. Either the court decreed that they have to sell or they are selling to pay their lawyers. Look for potential cosmetic damage when they finally leave as they will be unhappy about leaving their home. You can, however, get a good deal when there is a divorce going on. You may have to wait a bit longer for an answer as the two attorneys for the couple duke it out.

Bought their dream house. This means that they are motivated and dying to get rid of their home so that they can move. This is an excellent opportunity and this house, unlike the divorce house, will have good karma - if you believe in that sort of thing. It’s always nice to get a bargain off of someone’s good fortune (similar to the empty nesters) than someone’s misery (as in the divorce).

Foreclosure or about to be foreclosed upon. If they are in the process of foreclosure, then you can offer significantly less for the home. If the house has already been foreclosed upon, it will be vacant. There might be cosmetic problems with the house such as a mess all over the place, light fixtures removed and holes punched in walls. People are not happy about getting tossed out of their homes. These are usually just cosmetic damages, however, and can easily be repaired. If they are in the process of foreclosure, they will be glad to have you buy the house before the bank takes it to save their credit. Even if it means that they have to bring a check to closing. You can make an offer of about 20 percent less than the listing price. You can always come up, you can’t go down.

How many other homes like this are on the market?

If you are looking for a home in a coveted area and this is the only one for sale, guess what? Youfre going to pay a lot more than if you are looking for a home in an area where every other house on the block has a gfor saleh in front of it. The more supply, the less money the home is worth. Remember that when you make your offer.

When it comes to making an offer, you need to have two things:

ｷA contract

ｷEarnest money

Both of these prove that youfre serious about making a deal. The contract can be a real estate form contract that is used in your state, a George E. Cole legal form or a contract prepared by an attorney. Unless you have sufficient knowledge about real estate contract law in your state, you should have the real estate agent prepare the contract for you or your attorney.

If you are buying a foreclosure, you will need a contract as well as a cashierfs check for the earnest money and a pre-approval letter from your lender. It will take longer for this process as the bank reviews all bids and selects the best one.

If you are making an offer for a gfor sale by ownerh property, then you will need an attorney to draw up the contract, unless you understand real estate law in your state. An attorney will usually charge a few hundred dollars to facilitate the purchase of your home and will give you a peace of mind that everything was done correctly. If you are unfamiliar with real estate law, get an attorney.

If you are using a real estate agent, he or she can draft the real estate contract for you. This is one aspect of real estate law that they can practice and they will also be able to explain the contract terms to you. Again, do not allow the real estate agent to dictate the price to you. Come up with a price that you feel comfortable with so that you can get a bargain.