This article is the final
installment of the six part series on the mortgage buying process. After a
buyer's loan application has been approved by the chosen lending institution,
congratulations are in order. The buyer has completed five of the six steps
of the mortgage buying process and is only one step away from owning his or
her home. The sixth step of the mortgage buying process is the actual closing
of the real estate transaction between the buyer and the seller. This is the
most crucial step of the mortgage process, because legal documents are signed
and substantial amounts of money exchange hands. It is to the buyer's advantage
to become educated on the required closing costs and documents to be brought
to the closing prior to the closing date (to prevent any delays in finalizing
the transaction). In order to help explain this step, we will refer to none
other than Mortimer Gage. Mortimer Gage and his wife Morticia, are very happy.
They have just received word from the Bank of Suburbia that their loan application
was approved, Their loan officer, Len D. Money, was the first to tell them
the good news. Len also told Mortime r the date of the closing. Mort asked
Len if he would be conducting the closing. Len told Mort that the Bank of
Suburbia has all of their real estate closings conducted by Title Company
of Suburbia. Len then told Mortimer that settlement agents are independent
companies with no affiliation to any lender or real estate agency. Considering
all of the time and money involved, it is economical for the lender, and fair
to all parties involved (buyer, seller, real estate agents) if the closing
of the transaction is conducted by a neutral party in a neutral location.
After Mortimer finished talking
to Len, he decided to call Title Company of Suburbia and get detailed information
on the closing process. One of the settlement agents, May K. Deal, explained
to Mort that according to The Real Estate Settlement Proce dures Act (RESPA),
the person conducting the closing or settlement for the lender must provide
a settlement statement to the buyer and the seller of residential property(up
to four units financed by a first mortgage). RESPA also requires the lender
t o give the borrower a good faith estimate of what the closing costs will
be when the borrower applies for the mortgage loan.
The settlement statement
consists of two pages of information regarding all closing costs that the
buyer and seller need to know. May told Mortimer that the second page of the
statement lists all of the settlement charges pertaining to the transacti
on. The most common settlement charges are:
Broker's commission: how
it's figured, how it's divided by the broker, how much of the buyer's earnest
money is applied to the commission, and how much of the commission is paid
at settlement. Any other sales charges incurred by the broker are also listed.
Lender's charges: what the
mortgage lender charges to make the loan (expressed in percentage points of
the loan), the loan discount, appraisal fee, credit report, inspection fee,
mortgage insurance application fee, and any other charges. All must be itemized.
Lender's advance requirements:
mortgage interest, the mortgage insurance premium, and premiums for hazard
insurance.
Reserves deposited with
lender: certain payments into reserve accounts may be required on a monthly
basis for such items as hazard insurance, mortgage insurance, real estate
taxes, and assessments.
Title charges: the settlement
or closing fee, title examination fees (to search for any claims against the
property to be purchased), endorsement coverages and title insurance for the
lender and the owner (to cover any losses incurred in th e event of any claims
uncovered by the title company). The one time fee for title policy (including
the search and examination) averages $430 for a $100,000 home. Buyer's charges
are approximately $285.
Other charges: Government
recording and transfer fees, survey costs, a pest inspection, or miscellaneous
charges.
The first page of the settlement
statement lists the payments to be made by the buyer and the seller.
The buyer is responsible
for the gross amount due, including the price of the home; the price of any
personal property, (such as carpeting, draperies, or appliances included in
the purchase); and the settlement charges listed on the second page. I f the
owner/seller has made advance payments for taxes and assessments or other
items, such as insurance, these are included in the gross amount.
On the credit side, the buyer
has the deposit of earnest money, the principal amount of the new loan, and
credits for taxes to be paid by the buyer. Subtract the credit from the gross
amount. The difference is the amount of cash to be paid by the b uyer at the
settlement. The seller is owed the purchase price, payment for personal property
and adjustments for items paid in advance. This amount is reduced by an earnest
money deposit in excess of the existing mortgage and unpaid taxes. The gross
amount minus the reduc tions is the amount of cash to be paid to the seller
on the settlement.
Mortimer thanked May K. Deal
for her time and began anxiously awaiting the closing date. The closing was
completed on time with minimal hassle, partly because Mortimer Gage was prepared
for each step of the Mortgage Buying Process. The closing of a real estate
transaction can be a painless process if both the buyer and seller come prepared.
Mortimer Gage played it smart and asked the advice of professionals when he
was in doubt. It's time to break out the champagne and help Mortimer and Mort
icia Gage celebrate the purchase of their new home. By the way, Mortimer is
looking for volunteers for a house painting party.
