Closing: Escrow and Title
Welcome to the wonderful world of closing, also known as settlement. This
is where money and title are transferred between you, the buyer, and the seller.
You may want to get comfortable - you will be signing many forms and documents during this
process. But since you've been doing a great job managing your purchase, this should go
very smoothly.
Now, understand that even though you are not legally required to have an
escrow officer to oversee closing, we highly recommend it for both your
protection and the seller's. However, you can, if preferred, simply meet
the seller and exchange money and documents around the kitchen table.
Setting Up Escrow
You will want to meet with your escrow officer and establish an escrow account.
This is where you and sellers will deposit money and documents with specific
instructions for holding and distributing upon compliance of these instructions.
Your escrow officer will oversee these transfers.
Escrow officers serve many functions, and often times lenders require escrow as
a condition for receiving a mortgage. Escrow officers may typically be responsible
for the following items:
- preparing escrow instructions and relevant documentation
- obtaining signatures
- conducting title search
- processing a new loan or assumption of existing mortgage
- preparing closing statements
- distributing funds
- completing closing
- preparing taxes
Once escrow has been established, written instructions will be created
based on the terms and conditions
of the transfer, as stated in the purchase agreement. The instructions will be created
by the escrow officer, regarding the sale and
transfer of the property, detailing items like property description, involved parties,
sale price, financing, conditions, and fees.
Make sure that both you and the
seller have the ability to amend the escrow instructions if necessary.
Transfer of Title
During closing, all items related to ownership, payment, and insurance for the property
are transferred between you and the seller through the escrow officer. The process is
simple, the you will sign the mortgage loan, all closing costs will be paid, and the seller will
receive the proceeds from the sale and hand over the keys to you. Provided there are
no problems, this process is fairly straight forward.
Closing Costs
Ok, there's no avoiding these - you'll have closing costs. If you are unaware of what
types of costs you may be charged, we have put together a list based on
a sample settlement statement from Maryland (incidentally, Maryland has some of the highest closing
costs in the country).
Buyers and sellers typically pay various costs for the transaction. Typically there is a
set list of costs that the you're responsible for, and a separate set for the seller.
Many times buyers and sellers may negotiate who pays which costs as part of the
final terms of the purchase agreement. To avoid an unpleasant surprise during closing, you
should discuss these costs with your attorney and escrow officer well before closing.
All costs are paid during closing and can exceed $5,000 very quickly. Here's a break out
of those you may encounter:
Costs in connection with a mortgage loan
- loan originating fee
- loan discount
- appraisal fee
- credit report
- lender's inspection fee
- mortgage insurance
- assumption fee
- tax service fee
- document preparation
- underwriting fee
Title costs
- settlement or closing fee
- abstract or title search
- title examination
- title insurance binder
- document preparation
- notary fees
- attorney fees
- title insurance
- judgements
- lien certificate
- court copies
- federal express reimbursement
Government recording and transfer costs
- recording fees (deed, mortgage, and releases)
- city/county tax/stamps (deed and mortgage)
- state tax/stamps (deed and mortgage)
- city/county transfer tax (on our Maryland settlement, it was 1% of the final sales price)
- state transfer tax
Additional settlement costs
- land survey
- pest inspection
- repairs you must make resulting from problems found during the property inspection (after renegotiating)
- locksmith
- and of course there may be others based on your situation
These costs are unavoidable, and if your were wondering if you would pay less in fees if you were to
use a real estate agent - guess again. All real estate agent's commissions would be in addition to the costs
listed above. Of course the seller would be paying them. However, without the agent, the seller may be willing to
pick up more of your closing costs, freeing up more of your up-front money, which you could put towards the down
payment.
Well that's it - we told you it was easy. We hope you enjoyed yourself, it's now time to
move in.
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