Settlement, also known as closing, is when the property’s ownership passes from the seller to the buyer. It can be confusing to go through settlement for a new house. A seemingly endless list of documents is required for home buyers. Many of these documents are written in a language not commonly used in the housing industry, which can make it difficult to understand.

Be an informed homebuyer throughout the entire settlement process

  • Before you go to Settlement
  • Important Settlement Terms
  • Key Settlement Documents


BEFORE GOING TO SETTLEMENT

There are some important things you need to know before closing day so you can get the best terms possible for your transaction.

  • Ask your lender to give you a copy the HUD pamphlet ” Buying Your House: Settlement Costs & Helpful Information”. Although most lenders will provide this information to loan applicants under the Real Estate Settlement Procedures Act, you’ll be better equipped to make informed decisions about settlement services if the pamphlet is read before you apply. It gives a detailed description of the settlement process, and details most of the costs you will face.
  • The law requires that a lender provide a good faith estimate of the settlement costs to all applicants for loans. You will be informed about how much you owe shortly before settlement so you can obtain a bank statement. Personal checks are generally not accepted. You may be able to have the money returned to your account instead of having it charged.
  • Be familiar with the important terms of settlement before you proceed to settlement.


IMPORTANT SETTLEMENT TTERMS


APPRAISAL FEES:

An appraisal is a valuation of your home to determine its fair market value. Appraisals are used to help the buyer and the lender determine the fair market value of the property. The appraiser visits the house and determines the value of the area. An appraisal does not guarantee that the property will be free from defects. Lenders require an appraisal in order to determine how much they can recover from selling your house if it is not paid on time. The cost of this service can vary depending on your house’s specific characteristics.


ATTORNEY’S FEES:

You may be charged a fee by the lender if you need an attorney to draft any settlement documents. This could be a flat fee or a percentage. You will be required to pay an additional fee if you retain a lawyer to help you with the settlement.


CREDIT REPORT

For credit investigation, the lender might charge a fee.


EARNEST MONIES:

An earnest money deposit is money you pay to a seller in order to prove that you are serious about purchasing a house. A binder is your receipt for this payment. The earnest money can be applied to your downpayment if you buy the house later. The earnest money will be returned minus processing costs if it is not. Before you deposit, make sure you are familiar with the refund process.


ESCROW FEEES AND ACCOUNTS:

Escrow is a process whereby a third party holds funds and/or documents while you and the seller settle. You may need to make monthly payments to an account for escrow, depending on your loan. The money in the account can be used to pay taxes and insurance as well as any other regular assessments that are due. These accounts are similar to withholding income tax each paycheck. By setting aside money each month you can avoid large semi-annual or annual payments. The service may come with a charge. In some states, escrow account holders earn interest.

Sometimes, settlements are handled by escrow agents. Instead of you and your lender meeting to sign documents and transfer money, the agent works separately with you and your lender to make sure everything goes smoothly. This service is subject to a charge.


LOAN ORGINATION FEE:

Lenders will charge fees to process the loan. This fee is usually a percentage of the loan amount.


LOAN DISCOUNT POINTS:

Your settlement cost could be the largest. These “points” are fees that lenders charge to increase your loan’s yield. One point equals one percent of your loan amount. One point equals 500 if you borrow $50,000. If points are paid separately, they can be deducted from the loan amount. VA loans can only be charged one point. FHA loans and conventional loans can have higher points.

Each point you pay on a 30-year loan reduces your interest rate by approximately 1/8th of a percentage. There may be two options for you to choose from. One has lower monthly payments, but requires more upfront points. The annual percentage rate calculation also includes buyers’ points. Ask for the APR to assist you in making your decision. Remember that the APR is calculated based on the total loan term. A 30-year loan will have an APR of 30 years. This is a composite figure. The APR will not reflect the cost of points if you decide to sell your home within a few years. A loan with slightly lower points and a higher rate is better if you are moving soon.


PROPERTY SURGEE FEE:

It is possible that you will have to pay extra to have your lot surveyed. This is especially true if you have questions about the boundaries. Costs will vary depending on how complex the survey is.


RECORDING FEES:

The title is being transferred and must be recorded in your locality, county, or other appropriate government branch. This fee covers administrative expenses.


STATE & LOCAL TRANSFERTAXES:

Some jurisdictions levy tax on the sale of real estate or on loans made to property owners.


SETTLEMENT FEES BETWEEN BUYER & SELLER:

You may have paid your builder the annual property taxes or “filled up your tank,” but you will need to reimburse him for the proportion of taxes and fuel left in the tank.


TITLE RESEARCH AND INSURANCE :

A title search is when someone looks through public records to determine if there are any other claims to your property. Lenders won’t lend money to you only to find out that someone else has a claim on the property in case of foreclosure.

Lenders’ title insurance will be required in order to protect against a flawed title search and other hazards. This includes a forged title deed that does NOT transfer title, a claim made by an unnamed relative of the former owner or errors in the records. Title insurance is a one-time payment at closing that will resolve title problems and pay legal expenses to defend against any attack on title. It also pays claims for property the lender might lose.

Title insurance provided by lenders does not cover buyers for legal expenses or property loss. To protect the buyer, separate owners’ title insurance can be purchased. It is up to local custom whether the seller or buyer pays for the owners’ title insurance.

This list does not include all settlement terms. There may be additional fees for notarizing documents or other miscellaneous items.


KEY SETAMENT DOCUMENTS

After all forms are signed, you can move in to your new home. Before you sign the Settlement Agreement, ensure that you have received copies or will be mailed copies of all important documents.

  • Sales contract
  • Survey of the land
  • Manufacturers provide instructions and warranties for equipment used in the home.
  • All tax payment receipts
  • Certificate of occupancy required in certain areas
  • In most cases, certificates from the health department are required for sewer and plumbing installations
  • Additional certificates of code compliance are required in most areas
  • All insurance policies (some may be sent later, after they have been properly endorsed).
  • After being recorded in your local registry office of deeds, the note and deed to your property will be mailed to your address.
  • Your builder will provide you with instructions for home maintenance and care.