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.