Did You Ever Wonder What Happens on Closing day at the Settlement Table?

You have made it to the final step in the process of finding your dream home and now what?  It is the day of your closing!  This is the day you close the deal on your home as well as the mortgage to buy that real estate. Essentially it's the transfer of property ownership from the seller to the buyer.  The closing can take place at a title company or at the office of one of the real estate agents involved in the transaction.

Two things take place at the closing and will be described in more detail below: signing documentation and distribution of funds.

Who attends and how long will settlement take?

Most of the time, the sellers, the buyers and both realtors will attend. A settlement officer from the title company will run the settlement. It usually takes about 1-2 hours.

Papers You Will Sign As Buyers

(the first 4 are for purchases involving a loan)

  • Truth in Lending Disclosure – describes the interest rate on your mortgage
  • Note – promises that you will repay the bank
  • Mortgage – states that if you do not pay, the bank can foreclose on your home
  • Escrow paperwork – establishes the process of collecting money from you on a monthly basis so the bank has funds to pay taxes and insurance when those payments are due
  • Deed – states that the sellers are signing the property over to the buyers
  • Tax forms – puts the property taxes in your name
  • Name affidavit – verifies names that the buyers have used over time
  • Corrections agreement – authorizes the title company to resubmit papers for additional signing if mistakes are found
  • HUD-1 Settlement Statement – outlines all of the money that changes hands in the transaction

(This list is a good sample, but there could be additional forms required by your lender)

Distribution of Funds

  • The sellers will receive a check for proceeds they earned from the sale.
  • The real estate agents will receive a check for their commissions.
  • The buyers will provide a cashier's check to cover their down payment, escrow, title insurance policy, and closing costs.

Explanation of Who Pays

Depending upon what is negotiated in the contract of sale, the buyers and/or sellers pay the fees such as real estate commissions, title insurance, and pro-rated property taxes.  In some cases, buyers negotiate to receive money from the sellers that is used to pay some closing costs and fees (some portion or all), or payment of a one-year home warranty.  Some items are pro-rated and some are split between the buyer and seller according to length of use, at closing. Property taxes, insurance, homeowner’s association fees or condo fees, and water bills are the most commonly pro-rated items.  The most common split item is the transfer tax.  The HUD-1 shows line by line each and every expense as well as who is to pay what amount. Therefore, it’s helpful to review the HUD-1 prior to closing if possible.

What Buyers Should Bring to a Closing

As home buyers, your real estate agent and loan officer should provide plenty of coaching on what to bring to your closing. Things you’ll need:

  • A cashier’s check (not a personal check) usually made out to the title company for the total amount due on the HUD-1 Settlement statement. This includes your down payment and any closing costs that are your responsibility.
  • Personal identification with photo – can be your driver’s license or passport

What Buyers Receive at Closing

Lots of paperwork….and a set of keys! Congratulations!

-Debbie Gottwals

Title Insurance…why bother? (Guest Blogger MD Title Works)

People ask us all the time,

 “Why should I purchase title insurance?”

 “Do I really need title insurance?”

Buying a home is most likely the biggest investment you will ever make.  It is also probably the most expensive purchase you will ever make. So why anyone would ever consider NOT purchasing title insurance is crazy! We purchase life insurance, car insurance, pet insurance, health insurance, dental insurance, insurance for our phones etc. We pay yearly and/or monthly premiums without thinking twice. We wouldn't consider NOT owning homeowners’ insurance (which protects us against the cost of physical damage to our home) and we pay a hefty annual premium for it too.  No questions asked.

The interesting thing about the title to our homes is…it CAN be defective.  Believe it or not, builders have built houses on the wrong parcel of land, owners have forged documents, bogus mortgage releases have been filed, judgments have been missed when searching the title or have been indexed incorrectly among the land records, deeds have been filed with clerical and typographical errors or properties have been transferred by the wrong parties making them invalid.  The list of possible title defects is endless.  There are years and years and years of transactions for every parcel of land.  And these transactions have involved all kinds of people who, at anytime, can make a mistake or, even worse, intentionally commit fraud or wrong doing.

 “Two things are infinite: the universe and human stupidity; and I’m not sure about the universe”

~ Albert Einstein

That being said, because of the Title Insurance industry, regulations and standards have been created that help diminish fraud and/or human error, making title defects few and far between. Hooray, Hooray! (patting ourselves on our backs here).  However, it just takes one and,  if you are anything like Charlie Brown…it’s your property that is the one with the problem.

Title Insurance is a ONE time premium you pay at the time of purchase.  It is effective the entire time you own your home.  Most attorney fees are covered if you need to fight a claim.  In addition, it provides you with a reissue rate, meaning if you refinance your home at anytime, you will get a discount on the Lender’s Title Insurance that is required by most lenders.  That’s another thing—if the lenders require it, shouldn't you?

For the cost, Title Insurance is a no brainer.  It is what insurance SHOULD be.  It can protect you in most cases of fraud, errors and omissions and it is relatively inexpensive.  You buy the insurance ONE time and you have a policy....period.

So our answer is this:  You buy insurance, of any kind, as protection; protection against a loss that would result in a large, unforeseen expense.  Protecting the title to your home (probably your largest investment) is a must!  So we highly recommend buying it at settlement so you don't wake up one day to find there's a title problem and you end up paying thousands of dollars and spending countless hours trying to correct it. Whaa Whaa….Charlie Brown.

Maryland Title Works Unlimited