The Closing is the final step of your real estate property purchase. Both the buyer and seller are excited about the closing. After all their worries, stress, and hard work, finally everything is ready for settlement. The closing agent sends out the HUD statement to disclose all funds that are paid by and disbursed to the buyer, seller, and brokers on both sides of the transaction. HUD requires that the settlement statement and disclosures be sent out 3 days before the closing date so that the buyers, sellers, and agents have enough time to review the closing documents and correct any mistakes. Nothing is final until funds and the title are transferred, and keys are handed over at the closing.
The closing date is the day that buyer, seller, and brokers all come together to complete the sale. Even though the settlement happens on the closing date, the closing process begins almost immediately after the seller accepts the purchase offer. Generally, the closing date occurs within about 45 days after the contract is signed if the loan underwriting, appraisal, and inspection go smoothly and there are no major problems or delays. The closing agent will send out an initial notice to confirm the names of the parties, purchase price, loan amount, closing date, and other relevant details for the transaction. That notice should be reviewed and corrected as necessary.
As the closing date approaches, you will receive the draft HUD statement. You should review it carefully and understand your obligations and confirm that all fees and charges are correct. If you do not understand the HUD statement, you should ask your real estate agent or the closing company to clarify all questions and financial details. If you are the buyer, you also need to make sure your lender is processing the final loan approval and will deliver the loan funds and loan document package on time. Make sure that your mortgage loan terms are as expected, and that your rate and payment structure has not changed from the loan estimate. The title company will work on the title commitment and make sure the title is clear and insured. Once the title commitment has been issued, home insurance is in place, and all other requirements have been satisfied, the closing company will schedule the closing date and time for all the parties to meet and sign all closing documents.
At the closing, the buyers, sellers and their agents, title company or escrow agents and other parties involved in the transaction will meet and sign the closing documents. Generally, before signing the final documents, the buyers will walk through the property with their agent and make sure the property is as stated in the contract, that all promised repairs are completed and that the property is vacant and ready to occupy. You need to bring your photo ID to the closing and send a wire transfer to cover your down payment and closing costs. If you cannot attend the closing in person, you will need to sign and notarize a power of attorney to appoint someone to represent you and to sign the documents on your behalf at the closing. Many lenders, however, will not accept loan documents signed by the borrower through a power of attorney. In some instances, you can sign and notarize the documents in advance of the closing date and let your real estate agent walk through the property and inspect it on your behalf.
Some buyers retain an attorney to exam the title commitment and their closing documents to make sure everything is correct and consistent with the contract. In most States there is a customary allocation of closing costs between the buyer and seller. The common closing costs for buyers include the following:
Home inspection, Appraisal and Survey Costs: Home inspection, appraisal and survey costs can vary based upon the size, condition and value of your property. Generally, these costs must be paid upfront when the inspection, appraisal and survey are done. These costs may a vary among companies that provide these services. Your real estate agent can help you estimate the cost of these items and go through the inspection, appraisal, and survey smoothly.
Loan Origination and Underwriting Fees: These fees are the cost of your mortgage loan origination and underwriting services, not including credit reports and other fees. Most origination fees are calculated as a percentage of the total loan amount, typically ranging from 0.5% to 1%. These percentages also sometimes refer as points. A 1% fee is referred as one point. Underwriting fees can be charged as a percentage of the loan amount or a flat fee. In either case, underwriting usually costs less than 1% of the loan amount. Note that some mortgage loans known as no cost or no fee loans, do not have origination or underwriting fees. However, these loans may have higher interest rates than comparable traditional loans.
Title/Escrow Services and Insurance: The cost of lenders and buyers title insurance varies depending on the title insurance charges required in the State and the amount of the purchase price and loan amount. In some States the seller pays for the buyer’s title insurance and the buyer pays for the loan title insurance. The closing agent charges a settlement fee which pays for your title and escrow agent’s time and services in connection with the closing and typically ranges from $200 to $500.
Recording fee: This fee pays for the city or county recording office to record the deed transferring title to the buyer and the mortgage in favor of the lender. These fees vary widely between States and Counties and are relatively small in relation to the other closing costs.
Transfer Taxes: This fee is a State tax on the sale of real estate based on the sales price of the property. It is usually paid by the Seller, but Buyers should carefully review the contract and check with their real estate agent to make sure that the allocation is customary and correct.
Mortgage Taxes: Most States have taxes on mortgages that are paid by the Buyer. Your lender should give you an estimate of these taxes in your estimated loan closing costs.
Brokerage Fees: The buyer’s agent and seller’s agent are both paid their commissions from the seller’s proceeds. The commission amount is usually stated in the purchase contract and is generally a percentage of the purchase price. Some real estate offices also charge an additional fee for their services in the transaction. The fee varies from office to office depending on the real estate company. This fee can range from $100 to $300 and is usually specified in an addendum to the purchase contract.
Purchasing a home is exciting, but also stressful and cumbersome. However, your real estate agent can help you navigate your research and locate the home easily and save you time and effort. They can also help you with the purchase contract and any counteroffer and recommend inspection, appraisal, and survey services. They facilitate your transaction and make it much easier for you. Finally, your hard work and savings will be rewarded, and you will enjoy your beautiful home for years.
