Found your dream home? How much will your buyer’s closing costs be?
Imagine that you’ve just found the perfect first home, wish to upgrade to a larger one or are ready to buy a vacation home in another part of the country. The various types of costs required to close such a deal can be complex whether you pay cash or will require some longer-term financing. Some prospective home buyers think that cash deals are easy and the road to closing will be smooth sailing. Think again. While you may not have to pay loan fees at closing you may still have to pay your realtor his closing fee, a title search company to perform a title search or appraiser to conduct a property appraisal. Then there’s the issue of property taxes
. Who pays what? The division of property taxes between buyer and seller at closing is usually straightforward: the seller pays for that portion of the property taxes that corresponds to the time he owned the home up to but excluding the date of closing. The buyer picks up the tab starting from that date onward. It’s important to ensure that the division or reimbursement of property taxes accurately reflects each party’s pro-rata share of ownership.
Title Insurance Costs and Considerations
Title insurance is often considered a nuisance by some home buyers as they find it to be an unnecessary step in the closing process. If the previous owner lived in the house uninterrupted for forty years, for example, it will be hard to convince a buyer that he needs a title search. How could there be any unexpected liens or land register entries on the property? However, title insurance is an important inclusion to the closing process. Here are two things to consider:
- Should your title to a piece of property ever be challenged in court, your fees will be paid and
- If you lose, your equity in the home is covered.
The property records in the town or city in which the property is located need to be searched by a title company or attorney to determine if there are any claims to the property, existing heirs listed, claims from spouses, omitted deeds or other types of clerical error. The search process simply confirms that the seller possesses the property and has the right to sell it.
Cost of Inspections
Inspection Reports are one of the most important documents included in a closing procedure. They provide assurance to the buyer that the home he is buying is free and clear of structural errors. Most state laws require the seller of a home to advise or “disclose” certain defects to the home that may not be readily visible and which could impact the listing price. These typically include leaky roofs or insect damage or other hazards from the environment as well as obvious signs for mold or the potential for it. It’s important that you have all these potential defects listed on the inspection report as they could impact the final selling price. Some sellers may be forced to remedy the situation so that they can maintain their original asking price; other times, the seller just wants to “get out” and move forward with the sale. Here, he may be willing to drop the price in exchange for the buyer’s willingness to accept the defect and assume any repair costs. The savvy buyer will use this opportunity to exercise some buyer’s leverage and get the seller to reduce the price in exchange for assuming the costs. In all cases however, you as the new home buyer will need a clean bill of inspection before obtaining a loan. Make sure that these matters are all disclosed before you proceed. But there is more to consider: if the home price is attractive, then you probably were lucky to find a motivated seller. This motivation could be due to the seller’s needing to raise cash quickly. So, exercise caution; your closing procedure will no doubt include a proper and thorough search of any liens on the property. Liens represent not just the debt owed a bank on the mortgage but could also involve other types of liens recorded on the property. We will discuss these in another article. Most home buyers, especially first-time home buyers take out a long-term loan of 20 or 30 years to finance their purchase. If you go the mortgage route, then you have likely shopped around for the lowest interest rate possible and for the right term that fits your financial situation. Granting bank loans can be a costly process as the bank includes a number of administrative fees into your closing costs. This is how things start to add up. There is usually an origination fee, which is the costs of processing your application, funding and underwriting it. Lenders also charge “points” when granting a mortgage loan. These are calculated as several percentage points of the overall loan amount granted. Many buyers are unaware of the different types of fees involved with obtaining a mortgage and can be surprised at closing when unanticipated fees are listed on their closing documents.
Consumers Financial Protection Bureau (CFPB) Truth-in-Lending-Act (TILA) and Real Estate Settlement Procedures Act (RESPA) and what they mean for you.
In 2016, CFPB (Consumers Financial Protection Bureau) recently imposed changes in how buyers are to be informed about their final closing costs. The Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) were combined into a single rule, the TILA-RESPA Integrated Disclosures (TRID) Regulation, or simply put, the “Know Before You Owe” rule. This rule stipulates that prospective home buyers must be informed of all charges three days prior to closing and not at closing. Every homebuyer should be informed about his total closing costs and what the amount of his monthly payment will be. How can you be sure that your Lender is not overcharging you for the closing? Do you have sufficient confidence in your real estate agent that he has not omitted any required costs that could surprise you at closing? Do you need a HUD-1 Form or a Closing Disclosure Form? There is a difference. HUD-1 Forms are typically used when a buyer enters into a reverse mortgage settlement or a mortgage refinancing. For all other types of real estate transactions, the Closing Disclosure Form (a product of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010) comes into play. It requires all other borrowers to be furnished with a closing disclosure three days prior to closing. Many new borrowers are not experienced in the closing process and are best advised to seek an attorney’s help in making sure that they received the correct loan terms and calculation of monthly payments for their case. Trust the attorneys at Urban Thier & Federer, P.A when purchasing property and closing on your home. We have over 12 years’ experience assisting domestic and foreign clients with matters involving real estate. Our global network of offices enables us to provide expert legal advice to clients who are located across the United States and Europe. If you or someone you know requires advice regarding commercial or residential real estate, UTFPA can assist you with contract negotiation, obtaining a mortgage or refinancing an existing loan.