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1. How do I know 'how
much' house I can afford?
2. How much should I budget to own my
own home?
3. How do I go about finding a mortgage?
4. Can I qualify for
a mortgage if I have past credit problems?
5. What are five common
mistakes made by first-time buyers?
6. What's the real
difference between a new home & an old one?
7. Should I get a professional
inspection before buying a home?
8. Is real estate a
wise investment?
9. Does a home warranty
protect a buyer in the event something goes wrong after they
purchased property?
10. Is a pre-closing
inspection, that is, an inspection of the property by the
buyer before they move in, really important?
11. What are 'contingencies'
and why are they important?
12. Do I have enough
homeowner's insurance?
13. What is "escrow"
and what does it mean to buyers and sellers?
14. What does my Realtor®
mean when referring to a "closing"?
15. What are closing
costs and who generally pays them - the buyer or the seller?
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How do I know 'how
much' house I can afford?
There are several ways to gauge how much you can afford to
spend on a house. But, before you go house-hunting, get pre-qualified
for a mortgage so you'll know in what price range you can
shop.
It is not unusual for first-time buyers to be somewhat baffled
about how to estimate what mortgage payment they will be able
to handle each month, plus how much money they'll need for
a down payment and closing costs.
That's why it is a good idea to get pre-qualified through
a lender before you even start to look for a home. Pre-qualification
lets a buyer know exactly how much a lender is willing to
loan them. Obviously, with pre-qualification in hand, the
buyer can save a lot of time and frustration. Pre-qualification
does not obligate buyers to take a loan from the lender, nor
should it involve any fees (until later, when they actually
apply for the loan).
At the same time, you must understand that pre-qualification
is not pre-approval for a loan either which is a much more
involved formalized process that results in an actual letter
of credit from a lending institution for a specific loan.
Depending on your unique circumstances, you may wish to consider
pre-approval as an option, but it is not necessary. Consult
with your real estate professional to decide what's right
for you.
The less formal process of pre-qualifying on the other hand
is a tremendous tool for buyers to have when making an offer.
Usually, pre-qualified buyers have an edge when making a purchase
offer because the seller knows that the buyer is pre-qualified,
and that there is at least one lender ready to make it happen.
In addition, it allows you the flexibility to choose the mortgage
that is best for you at the time of actual purchase - which
is sometimes months down the road. That can be important given
the volatility of interest rates.
When a lender pre-qualifies, they are more concerned about
the buyer's paying ability than the price of the property.
For this reason, lenders are interested in more than just
a buyer's income. They also want to know how much existing
debt a buyer has, what their on-going financial obligations
happen to be, and what the buyer's monthly budget looks like.
Lenders use an established debt-to-income ratio, usually between
.28 to 1 and .38 to 1, to calculate the amount of the loan
they are willing to give to a buyer. For instance, a lender
who uses a .3 to 1 debt-to-income ratio has determined that
payments toward debt reduction, including existing debt plus
new debt associated with buying a home, cannot be more than
30% of they buyer's gross monthly income.
An important factor that may influence a lender to authorize
a loan with a higher debt-to-income ratio (where debt payments
take a higher percentage of a buyer's income) is a larger
down payment. Buyers who put a larger percentage of the purchase
price down (5%, 10%, 15%, 20%, etc.) are considered better
"risks," because the theory is that the more a person
has actually invested in the purchase, the less likely they
are to default on the loan.
Buyers usually discover that the pre-qualification process
will produce a home purchase price that is roughly 2 1/2 to
3 times their gross annual income. The 2 1/2 -to-3 guideline
is only a general rule of thumb, however, and it doesn't take
a buyer's full financial situation into consideration. Since
the lender's calculations will also consider a buyer's actual
debts and ongoing expenses, the loan pre-qualification amount
may be higher or lower.
Regardless of the price bracket a buyer targets, they should
keep pre-qualification in mind.
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How much should I
budget to own my own home?
Aside from the down payment, the three largest expenditures
involved with the purchase of a home are usually your monthly
mortgage payment, insurance and taxes. Obviously, the amount
of your mortgage payment depends upon your down payment, rate
of interest and the price of the property.
Take, for example, a home that has a $100,000 mortgage. An
8% fixed mortgage for 30 years, will run approximately $734
per month. What about taxes? The rate will oftentimes vary
from city-to-city, but generally you might expect your yearly
tax bill to total around 2% of the purchase price.That means,
for a home with a market value of $100,000, yearly taxes might
run around $2,000. A local real estate agent can help prospective
homeowners refine these figures.
In addition, it is important to keep in mind that there are
many additional expenses incurred with home ownership, some
of the most obvious are utilities and trash collection. Smart
homeowners should also budget for one other item--maintenance
and upkeep of the home. If possible, a small amount should
be set aside each month to pay for those "rainy day"
repairs such as painting, plumbing (hot water heaters, garbage
disposals), adding storm windows (to improve energy usage),
insulation (in attics), etc. And, if you live in a home long
enough there are inevitable repairs - e.g., the cost of roof
replacement.
But home ownership is not just a one way street. That is,
aside from spending money on repairs and maintenance, homeowners
can profit from their property. The most significant benefit
is the tax deduction. It is no secret that among the last
real income tax deductions available to consumers today are
the interest paid on the home loan and the property taxes.
This can amount to thousands of dollars in deductions each
year.
And, of course, the primary benefit of home ownership is
appreciation (equity that builds every month). A home, aside
from being a place that provides shelter, can be a profitable
investment, and the rising value of the property oftentimes
provides another "savings" account.
So, when it comes to buying a new home, remember one thing...the
purchase of a property requires budgeting and planning, but
it can also provide the buyer with a long-term investment
and a return that is hard to beat.
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How do I go about
finding a mortgage?
The commotion of house hunting is finally over. You found
just the right house, and your offer has been accepted. It
was a great buy. Now, just one more hurdle - getting a loan
- and you're home free.
Often, buyers are so eager to get this "final detail"
behind them, they rush through this portion of the transaction,
and end up with less-than-ideal terms. Borrowers, however,
have something lenders want...their business. This positions
them to negotiate the best possible price (cost of loan),
terms and service.
Let's look at price, or the cost of the loan. The first thing
to do is find out what the current rates are, information
readily available in your newspaper or from your real estate
agent. When comparing rates, figure the annual percentage
rate (APR), which includes interest, extra fees and costs
amortized over the life of the loan. Also determine the number
of points, if any, that the lender will charge to make the
loan. (A point is equal to one percent of the loan amount.)
Next, consider what loan options the lender offers. There
are six or seven basic types of loans, which vary in their
duration. Check how rates are calculated (fixed versus variable),
and whether charges are fully amortized over the life of the
loan, or whether you'll have to pay points up front and/or
balloon payments at the end. Is there a prepayment penalty
clause?
Which terms are best for you depends on such factors as what
changes you expect in your income, how long you plan to own
the home, and what you predict will happen with loan rates
in the years ahead. For example, if you only plan to reside
in the home for a year or two, starting with a lower Adjustable
Rate Mortgage (ARM) might be the best choice. If you have
no plans to move, and feel that inflation will rise rapidly,
a fixed rate would obviously be better.
Finally, and perhaps most importantly, consider speed and
service. Buyers shouldn't have to wait days for approval and
weeks for closing just because the lender is slow.
Remember, qualified buyers are great prospects for lenders,
so give your business to the lender who demonstrates they
not only want it, they deserve it.
For help with your mortgage questions, please contact Cencal
Mortgage at 805-238-LOAN (5626) or visit CenCal's web site
at www.cencalmortgage.com.
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Can I qualify for
a mortgage if I have past credit problems?
Credit problems can make it harder to qualify, but it's quite
possible for buyers with poor credit to obtain a home loan.
Anyone who has had a financial problem, whether it was a
matter of late credit payment, delinquent taxes, or even a
judgment that was filed, should expect this data to be a factor
when applying for a mortgage.
How critical a factor? Minor lapses will probably have little
or no effect. However, buyers with serious problems may still
qualify for a loan, but they may have to pay a higher rate
of interest or provide a larger down payment.
There are three steps that a person with past credit problems
should take before applying for a loan. First, request a credit
profile from one of three major credit reporting agencies.
In fact, it's best to request a report from all three, since
not all creditors report information to the same agencies.
TRW will furnish a complimentary copy once a year on request,
at (800) 392-1122. Equifax (800/685-1111) and Trans Union
(800/408-1050) will also furnish reports for a nominal charge.
Second, the buyer should optimize his or her credit profile
by citing prompt payment of rent, utilities, and other bills
not reported on the credit profiles.
Finally, the buyer should be prepared to provide comprehensive
and candid explanations for any late payments to the loan
officer. This is important because problems not reported by
the buyer but discovered by the lender will reflect unfavorable.
Many lenders are understanding about one-time problems such
as the loss of a job, a medical emergency, etc. Buyers with
patterns of delinquent payments might want to consider adding
six months or a year of flawless credit to their track record
before pursuing their home-buying plans. Discuss this with
your real estate agent. They can offer excellent suggestions.
So remember...if you are thinking about purchasing a home,
but are worried about your past financial record, don't give
up. There are solutions, lenders and agents who are in business
to help.
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What are five common
mistakes made by first-time buyers?
A good home-buying decision is one that fits your lifestyle
and your budget. Sounds simple? Not always. Here are five
common mistakes frequently made by first-time buyers and how
to avoid these pitfalls.
(1) Looking outside your price range. To
avoid disappointment, contact a real estate agent who can
help you pre-qualify before you start looking for a home.
The agent can also provide valuable insight on taxes and other
expenses associated with a home (utility bills, etc.)
(2) Buying on impulse. Buyers, especially first-timers,
may be impressed by the first two or three homes they view.
Look at a good selection. List the positives and negatives.
Narrow the prospects to three or four, and then return for
a closer look. Evaluate more than just the property. Look
at the surrounding area and community amenities. Is this what
you-and your family-want and need?
(3) Not planning ahead. Think seriously about
any personal changes you are planning in the next five to
seven years. For instance, if you are planning on having children,
consider how the home will meet both your current and future
needs. If a double-income is necessary to qualify for financing
and make your payments, do your plans foresee an income sufficient
to continue making payments?
(4) Failure to focus on location. Don't just focus
on the house, examine the neighborhood. Is the area safe,
well-maintained, moderately quiet and close to work, stores,
and schools? Find out about zoning and what new construction
is planned on any vacant land in the immediate neighborhood.
Will the property be easy to market when you are prepared
to sell it?
(5) Failure to understand the home buying
process. Once you select a home, get involved. Find a real
estate agent willing to spend time with you. Don't hesitate
to ask questions. Have them explain the negotiation, financing
and escrow processes and other elements involved in the transaction.
Home-buying involves knowing the price, and what's inside
and around the property. Consider all your options carefully.
This may be the most important financial transaction of your
life.
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What's the real difference
between a new home & an old one?
While each offers its own style and charm, the difference
usually boils down to two things: (1) how the home fits into
the buyer's lifestyle; and, (2) the condition of the property.
Homes that are 10 years old or less are generally better
insulated. They have dual-glazed windows or thermal panes,
which translate into lower heating and cooling bills. And,
in today's rising energy cost environment, these considerations
are significant. Although there are some exceptions, homes
that have been built with all-electric systems, generally
have higher utility bills.
Homes that range between 15 and 20 years old may be in need
of new water pipes, especially if the old ones were galvanized
and if a water softener was used. Water softeners and galvanized
pipe can be deadly and, after 15-20 years, re-plumbing is
usually required. Have a plumber or general contractor inspect
the pipes. Needless to say, it can be expensive to re-plumb
an entire system.
Check the built-in fixtures and appliances for any signs
of damage. Flush toilets, test all the water taps and the
electrical sockets, open and shut the windows, and try all
the lights. A window that will not open may be a sign of a
more significant problem-for example, a wall may have shifted,
or worse yet, it could indicate a problem with the foundation
itself.
It is also a good idea to ask the seller for copies of past
utility bills. Examine them for some insight into what you
can expect monthly gas and electric costs to be.
Although newer homes may be free of significant physical
or structural problems, there are other things to consider
in making your decision. Generally, room size and yard size
tend to be smaller in some newer homes. While, on the other
hand, they usually offer the benefit of the latest building
and design technology. Many new homes also have more windows
and natural light incorporated into their design plan, allowing
for a more spacious feel and efficient energy usage.
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Should I get a professional
inspection before buying a home?
Definitely. Hiring a professional home inspector can save
a great deal of grief for buyers. The one exception would
be when the home is new and carries a written warranty by
the builder.
Many buyers mistakenly believe that the only reason to have
a home inspection is to make sure that the house they're buying
doesn't have defects serious enough to warrant backing out
of the transaction. But there's more to it than that.
Certainly, an inspection will usually reveal major problems
that may even surprise the seller. The obvious ones are corroded
plumbing, antiquated and unsafe electrical systems, or structural
and foundation problems. And, the discovery of such problems
may cause the buyer to re-think his or her offer.
Although a competent inspector can uncover deal-crushing
defects, these problems are usually not commonplace. Typically,
the seller will already have told the buyer about anything
major. More often, inspections reveal less serious problems;
problems that may not be serious but can be aggravating.
For instance, there could be a minor electrical defect, or
inferior ventilation of a heating system or fireplace. If
so, the buyer is usually in the position of having the purchase
price reduced, or the defect corrected. More important, it
also prevents the minor problem from developing into a major
disaster a year or two down the road.
There is, of course, the possibility that the home inspection
will produce another outcome: everything is fine. In this
case, they buyer gains piece of mind, confident about the
major investment he or she is about to make. That, too, is
an enormous benefit for the cost of the inspection.
Now, how does a buyer find a home inspection? By asking their
real estate agent, friends, or lender. Inspectors are also
listed in the Yellow Pages under "Home Inspection Services."
But, a word of advice-don't hire a contractor. Contractors
earn their living doing repair and renovation work, so their
recommendations aren't likely to be as objective as those
of a professional inspector.
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Is real estate a wise
investment?
In the long run, there are fewer investments that have shown
a better return.
However, the key to investing wisely in real estate is understanding
how the industry differs from others. For example, when the
defense industry dips, it usually shows a national decline
and the stock prices of defense-oriented firms drop across
the board. The same is true of most industries. They are impacted
nationally.
That is not the case with real estate, which is actually
an industry and investment driven by local conditions. One
community may suddenly lose a manufacturing facility, and
almost overnight the market is flooded with properties for
sale. An excellent example is Southern California. Several
years ago, when defense cutbacks began an excess of homes
went up for sale, increasing the supply and lowering demand.
Therefore, it became a buyer's market. At the same time, Bakersfield,
a community less than 150 miles from Los Angeles continued
to experience high demand for real estate. With a short supply
of homes, it was a seller's market.
Obviously, the key to successful real estate investing, like
stocks and bonds, is to buy low and sell high. But, how do
you know when the "low" has been reached? Or, for
that matter, how can you judge when your property may be peaking
in value?
Some investors rely partially on the media. They read the
daily newspaper, watch television and follow the trends. Although
the media provides a good deal of information, remember that
by the time things are printed or broadcast, the news may
be old. For instance, you will find statistics frequently
quoted in the media that have been supplied by the National
Association of Realtors (NAR). But, NAR statistics, like most,
tell you where things have been, not where they are going.
So what can you do? First, check local economic indicators.
If, for example, a community depends on defense spending,
and there is a government cutback, you can be assured that
your area will be impacted. Even if the community does not
have a major defense contractor, it may have subcontractors.
The local chamber of commerce can frequently help. They usually
have information on which companies are moving in and out
of an area. Logically, the relocation of a firm into a community
generally indicates that demand for real estate in that marketplace
will increase-while if firms are moving out of the area, housing
demand will often shrink.
Aside from economic indicators, check real estate trends
and cycles. Talk to a real estate agent. They can provide
statistics on how quickly homes have sold, how prices have
fluctuated in the past six to 12 months, and projections of
future home sales. They can show you how today's market compares
to last year's. Are sales headed up? Down? The same?
The answers will not only help you determine what the market
is like in your area, but they will also be critically important
in helping you determine when and where to make your real
estate investment.
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Does a home warranty
protect a buyer in the event something goes wrong after they
have purchased a property?
Sometimes.
That's because home warranties are oftentimes misunderstood,
and not every warranty provides the same protection. All warranty
companies are not equal, either.
Warranties, of course, were designed to protect buyers from
problems that emerged after they moved into a dwelling. For
example, if a major appliance breaks or the roof leaks, the
ideal warranty kicks in and pays for the repairs.
On the surface, this sounds simple and straight forward.
But, most of the time it is not.
First, all warranties differ. Aside form the obvious differences
(the amount of deductible required), they may also vary insofar
as what is covered and what is not. For instance, with some
warranties, if the hot water heater works on the day of closing,
but suddenly does not work six months later, then it may be
covered. And, with other policies if the water heater was
not in good working condition when the home was purchased,
and it breaks a week or two later, there is no coverage.
Complex? Confusing? It can be. Even though the language in
the warranty must spell out exactly what's covered, it isn't
always the easiest document to understand. Thus, step one
in evaluating any warranty should be to take it to your attorney
to help you decipher the legalese. It may be well worth the
hour or so that it will cost you in legal fees.
Next, is the warranty company financially sound? In many
states, warranty companies can be doing business, despite
the fact they do not have the funds to back up their policies.
Thus, step two when evaluating a warranty is to take the policy
to your accountant or a local CPA. Have them check out the
warranty company's financials. Can they pay the claims?
Warranties can be critically important when it comes to new
construction, too. Obviously, the reputation of the builder
is an important consideration. However, problems with new
homes can be enormously expensive if they are not covered
by a warranty.
There are two types of defects when it comes to new homes:
patent or latent. Patent are those problems which can be seen.
Cracked plaster, a fence that is off-kilter, etc. Latent problems
develop later, and may not show up for five or six months...ground
shifting, for example. Latent problems are usually more expensive
than patent problems. Thus, the warranty for a new home can
be one of the most important documents executed during the
buying process.
Whether you are purchasing a new home or a resale, remember
that warranties definitely have a place when it comes to protection
and peace of mind in the real estate transaction, but make
sure that you check them out carefully.
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Is a pre-closing
inspection, that is, an inspection of the property by the
buyer before they move in, really important?
Yes, it is. The intent of a pre-closing inspection is to
give the buyer one last opportunity to verify that they are
getting all that was promised in the sales contract. Although
buyers still have legal recourse if they discover, even after
closing, that the condition of the home is not as it should
be. The best time to identify problems is before closing,
when the seller will be motivated to correct any deficiencies
in order to close the transaction.
Typically, a buyer takes possession of a property one to
three months after signing the sales agreement. But, a lot
can happen before the actual move-in. Appliances and fixtures
can break down, and walls, carpets and doors can be damaged
during the seller's move-out. Sometimes the seller will simply
have forgotten that he or she had agreed to leave the refrigerator
or window coverings with the house. Whatever the reason, problems
identified before closing have the best chance of being remedied.
If possible, schedule the inspection right before the closing,
such as the day before. Ask your real estate agent to attend
the inspection with you.
What should you be inspecting? Using a copy of the sales
contract as a checklist, first make sure that all items that
should be in place: appliances, built-in furniture, window
coverings, fixtures, etc. are there. Test each appliance to
make sure they work properly. Bring along an electrical clock
or radio to test each electrical outlet. Test all electrical
switches and the garage door opener, if there is one. Run
the garbage disposal and turn on every water faucet, checking
under the sinks for leaks. Flush the toilets. Inspect the
floors, carpets, walls and doors for recent damage.
If you discover that something is damaged or missing, make
a note of it and inform your agent immediately. In most cases,
the seller is usually able to take care of small problems
immediately, either by making a needed repair or offering
compensation to handle it. And, if there are major problems,
the seller can even sign a statement acknowledging the deficiency
and agreeing to correct it. Although pre-closing inspections
take time and may be inconvenient, they are important and
well worth the buyer's time.
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What are 'contingencies'
and why are they important?
A `contingency,' is an escape-clause that is added, in-writing,
to a contract which allows a buyer to back out of the transaction
if certain conditions aren't met.
Some contingencies, often called `riders',-like attorney
approval of the contract, or the passing of a home inspection-are
obviously designed to protect buyers from a poorly written
contract or a defective home.
Other purchase contingencies may hinge on the buyer's current
living situation, or his or her cash-flow.
For example, when it comes to contingencies many first-time
buyers can be better prospects for a seller's home than move-up
buyers. Why? Because offers from homeowners usually are contingent
upon the sale of their present home. And, even if a move-up
buyer has an offer for their home in-hand, their buyer's offer
may be contingent on another contingency (or sale), and so
on down the line. If one transaction in the chain falls through,
they all might.
Cash offers can also be more attractive to sellers. Why?
After all, the seller will get their money at closing whether
or not the buyer has cash or takes out a loan. True, but cash
offers don't require lender approval, loan approval is never
a certainty and may delay or prevent closing. (Incidentally,
for this reason, buyers who get pre-qualified for a loan have
an edge over other buyers. A pre-qualified buyer is the same
as a cash buyer.)
Buyers offering a larger-than-customary amount of "earnest
money", a deposit that accompanies an offer, can be more
appealing too. More money deposited along with the signed
contract often demonstrates greater sincerity and motivation
to close the transaction.
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Do I have enough
homeowner's insurance?
Unfortunately most homeowners are inadequately insured. In
fact, many not only lack financial protection for the equity
in their home, but for their personal property as well.
Why?
It usually happens because lenders only require home buyers
to carry enough insurance to cover the value of the mortgage.
Then, in the event of damage or destruction to the property
(fire, flood, etc.), the lender's investment is covered. Unfortunately,
this required insurance is only for the lender's money. It
does not cover the homeowner's personal property, or their
equity.
When deciding on insurance, homeowners should carry enough
to cover the replacement value of the home and all of its
contents. The key word is replacement. As the homes appreciates,
so will its replacement cost. Thus, the policy should be reviewed
every year or two, adjusting the amount of coverage if appropriate.
A word of caution, however. Do not insure for more than the
value of your real and personal property, because an insurance
company will not reimburse more than the replacement value
of the property. Consult with a reliable agent to ensure that
you have the correct amount of insurance.
The most common homeowner policies cover the home and its
contents without requiring an itemization of all furniture
and personal effects. Items over a specified value, such as
jewelry and artworks, are generally listed separately and
usually require an additional premium.
Remember, few homeowners think about the value of their home
or the replacement costs-until a disaster hits. The key is
to be pro-active. Get the coverage you need, before you need
it.
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What is "escrow"
and what does it mean to buyers and sellers?
Escrow is a process that begins when the purchase offer papers
are signed by both parties, and ends when the loan is approved
and all the necessary requirements have been fulfilled by
both the buyer and the seller.
The escrow holder is an intermediary, and an agent of both
the buyer and seller. The escrow holder is given the buyer's
deposit, and holds onto all funds until the agreement is finalized.
They notify the seller when the deposit has been received
and if the check has cleared the bank. The escrow holder also
draws up a set of instructions, itemizing things that have
to be done to the property before it is sold and the title
is transferred.
For example, if the seller is required to supply a termite
inspection, the escrow holder would track this obligation
and make sure it is fulfilled before any funds are transferred
to the seller. Findings in the termite inspection report must
be corrected on or before the close of escrow. If the report
calls for a plumber, roofer or other contractor, the agent
would advise the seller and get authorization for work to
be done.
The escrow company also interacts with the title company.
The escrow holder receives a complete ownership history of
the property and any liens on record in the preliminary title
report. Anything that is out of the ordinary, such as condo
liens, judgments, etc. against the buyer and the seller must
be clarified prior to the sale of escrow.
The escrow process can be any number of days depending on
what is agreed upon between the buyer and seller. To assure
a timely closing, the buyer should do things like, inform
the escrow holder of the name and phone number of their insurance
agent as soon as possible. The homeowner insurance policy
needs to be ordered early, so verification can be made with
the lender. The lender will not fund a new loan without a
homeowner policy. If there is a delay, the escrow process
may be held up.
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What does my Realtor®
mean when referring to a "closing"?
A closing is the meeting where title and money are exchanged
between the seller and the buyer, and the sale of a home is
finalized.
At the closing all the progressive steps in buying a home-from
the acceptance of the offer, title search, home inspection,
buyer's loan application to approval, etc.-come together in
a final transaction. The documents are ready to sign, the
buyer is ready to hand over the purchase price, and the seller
is ready to transfer title (and the keys!)
Usually held at the offices of a title company, the closing
takes less than an hour and sometimes less than 30 minutes.
The meeting is always attended by the buyer, usually the seller
(although his or her signature can often be obtained in advance),
the brokers and/or attorneys, and of course, the title company
representative-who acts as the intermediary for the seller
and buyer in the transaction.
What goes on during the closing? First the buyer reviews
all the loan documents, which describe the loan amount, payments
and itemization of closing costs, including impounds for tax
and insurance, etc. If everything is as it should be, the
buyer signs the loan papers.
Next, the buyer reviews and signs the title documents, making
sure the deed is recorded as desired (joint tenancy, tenants
in common, community property, etc.) By the time the closing
is held, the title company has already conducted a title search
and verifies that the title is held by the seller, and that
no liens are held against the property. If there are any obstacles
or other conditions that could potentially undermine the sale
of the property, the title company will tell the seller about
them (in writing) at the closing.
Assuming, however, that the funds are in order, the deed
is correct and the title is clear, the final step is the disbursement
of funds to the seller for the purchase price of the home,
and the presentation of the keys to the buyer. The buyer may
also receive a refund for overpayment of closing costs, which
were paid out of his or her deposit check.
What should a buyer be prepared to bring to closing? That's
easy: everything. The buyer should bring all of the documentation
relating to the transaction, including a canceled check for
the deposit paid with the offer, just in case the title company
or lender asks for it unexpectedly. The title company should
already have the loan funds in its possession, but the buyer
needs to bring a cashier's or certified check for the purchase
amount minus the loan amount (that is, the downpayment).
Ideally, the closing will go through "without a hitch."
Some delays, such as receiving loan funds from the lender
or an error in the loan documents, are unpredictable and therefore,
uncontrollable. Other delays, however, can be avoided if they
are anticipated and, if possible resolved ahead of time.
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What are closing
costs and who generally pays them - the buyer or the seller?
First, the responsibility of who pays for closing costs is
always negotiable. Local custom may dictate which fees the
buyer will pay and those the seller pays.
Typically, the buyer pays for home inspection services and
escrow, deed preparation and recording fees. He or she may
also pay for title insurance, since this is required by the
lender. The buyer is also responsible for any fees or costs
associated with obtaining the purchase loan.
The seller customarily pays the real estate agent's commission,
as well as costs associated with transferring an unencumbered
title, such as a title search, reconveyance deed and documentary
transfer tax. Often, a seller will sweeten the deal by offering
a one-year home warranty.
Who will pay for what closing costs should always be clearly
spelled out in the purchase offer. A creative sales associate
will consider the cash, income and tax situation of the home
seller and the buyer when constructing an offer. For instance,
if the buyer is short of cash, the agent may ask the seller
to pay the buyer's loan points up front in exchange for some
other concessions from the buyer. In this scenario, the buyer
and seller benefit-and both get what they want.
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