What happens at closing?

 

"Closing" is the final step in the home-buying and financing process, where ownership of the property is officially transferred from the seller to the buyer. During the closing, all parties involved in the mortgage loan transaction, including the buyer, seller, real estate agents, attorneys, lender's representatives, title and escrow firm representatives, and other staff, gather to sign the necessary documents.

Key elements of the closing process include:

Review and Signing of Documents: The buyer, seller, and other parties review and sign various legal documents, such as the mortgage agreement, promissory note, deed of trust, and others as required.

Payment of Closing Costs: The buyer pays any outstanding closing costs, including fees for appraisal, inspection, title search, and other services.

Transfer of Funds: The buyer provides the down payment, and the lender disburses the loan amount to cover the purchase price. In many states, a title or escrow firm handles these transactions, ensuring that all funds are properly distributed.

Final Walkthrough: Before closing, the buyer conducts a final inspection, or "walk-through," to ensure that the property is in the agreed-upon condition and that all requested repairs have been completed. The buyer also checks that any items agreed to remain with the house, such as drapes or lighting fixtures, are present.

Title Transfer and Exchange of Keys: The seller signs the deed, transferring ownership to the buyer. The title or escrow firm then disburses the funds, gives the check to the seller, and hands the keys to the buyer.

The duration of the closing process can vary from an hour to several hours, depending on the complexity of the transaction and any contingency clauses or escrow instructions that need to be addressed. While most paperwork is handled by attorneys and real estate professionals, the buyer may be involved in some of the activities, depending on the arrangements made with their representatives.

 

What are Closing Costs?

Closing costs are fees associated with finalizing a mortgage and transferring property ownership from the seller to the buyer. These costs typically include a variety of expenses, such as:

Transfer Taxes: Taxes imposed by state or local governments on the transfer of property ownership.

Deed Recording Fees: Charges for registering the property's deed and other documents with the local government.

Pro-rated Taxes: Taxes paid in advance by the seller or buyer, covering the period the property is owned within the current tax year.

State and Local Fees: Various fees required by state and local governments for services like property surveys, inspections, and other administrative costs.

These costs are usually paid at the closing and can vary based on the property's location, loan type, and the specific terms of the transaction.

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What are Third Party Costs?

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Third-party fees in a mortgage closing cover various services provided by external parties, not directly involved with the lender, buyer, or seller. These fees typically include:

Appraisal Fee: For assessing the property's value to meet lender requirements.

Inspection Fees: For evaluating the property for potential issues like structural damage or environmental concerns.

Title Search and Title Insurance Fees: For confirming the property's title is clear and protecting against future claims or title issues.

Escrow Fees: For managing and disbursing funds and documents during the closing process.

Survey Fee: For measuring and verifying property boundaries.

Homeowner’s Insurance: For coverage that protects the property from damage or loss.

Real Estate Agent’s Sales Commission: Paid to agents who facilitate the transaction.

Attorney’s Fees: For legal services related to the closing process, such as reviewing and preparing documents, and ensuring compliance with local laws.

These third-party fees ensure that all aspects of the transaction are thoroughly reviewed and that the mortgage closing process is completed smoothly.

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Other Up Front Expenses?

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Upfront expenses when getting a mortgage include several key costs that need to be covered before finalizing the loan:

Down Payment: The portion of the home's purchase price paid upfront, which can vary depending on the loan type and lender requirements. It is typically a percentage of the purchase price.

Closing Costs: Fees associated with finalizing the mortgage, including:

Transfer Taxes: Taxes levied by state or local governments on the transfer of property ownership.

Deed Recording Fees: Charges for recording the deed and other documents with local authorities.

Pro-rated Taxes: Taxes that cover the period of property ownership within the current tax year.

Title Search and Title Insurance Fees: For verifying and insuring the property's title.

Escrow Fees: For managing funds and documents during the closing process.

Appraisal Fee: For evaluating the property's value.

Inspection Fees: For examining the property's condition.

Survey Fee: For measuring property boundaries.

Homeowner’s Insurance: Insurance coverage for the property against damage or loss, often required by lenders.

Attorney’s Fees: If applicable, for legal services related to reviewing and preparing closing documents.

Real Estate Agent’s Sales Commission: Paid to agents who facilitate the purchase, usually a percentage of the home’s purchase price.

These upfront expenses ensure that the mortgage transaction is completed smoothly and that the property is properly assessed and insured.

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What is R.E.S.P.A.?

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The Real Estate Settlement Procedures Act (RESPA) is a U.S. federal law enacted in 1974 to protect consumers in the home buying and mortgage loan process. RESPA requires lenders to provide borrowers with detailed information about the costs involved in a real estate settlement, aiming to ensure transparency and fairness. Key provisions of RESPA include:

Disclosure of Settlement Costs: Lenders must provide a Good Faith Estimate (GFE) or a Loan Estimate form outlining the estimated costs of closing, including fees for services like appraisal, title insurance, and escrow.

HUD-1 Settlement Statement: Prior to closing, borrowers must receive a detailed HUD-1 Settlement Statement that lists all actual charges and credits involved in the transaction, allowing for a comparison with the initial estimates.

Prohibition of Kickbacks and Referral Fees: RESPA prohibits kickbacks and referral fees between settlement service providers to prevent conflicts of interest and ensure that consumers are not charged unnecessary fees.

Escrow Account Requirements: The law regulates the amount of money that can be held in escrow accounts for property taxes and insurance, and requires an annual statement of escrow account activity.

Consumer Rights: RESPA mandates that borrowers receive information about their rights, including the right to receive a copy of the appraisal report and to dispute errors in the settlement statement.

Overall, RESPA aims to promote transparency, ensure fair practices, and protect consumers during the home buying and mortgage process.