The big day has arrived. Today you will go to the title or escrow company, sign your name on the dotted line an unbelievable number of times, hand over a check and prepare to take ownership of your new home. What is this all about?
It's also the day that you and the seller will pay "closing" or
settlement costs, an accumulation of separate charges paid to different entities for the professional services associated with the buying and selling of real property.
To help you better understand this confusing subject, here are the answers to some of the most frequently asked questions about title, closing and closing costs.
What services am I paying for with closing costs?
You will usually be paying for such things as real estate commissions, appraisal fees, loan fees, escrow charges, advance payments such as property taxes and homeowner's insurance, and title insurance premiums. You may also pay for a pest/termite inspection and a home inspection if you did not pay for these separately.
How much should I expect to pay in closing costs?
The amount of closing costs will vary; however, when buying your home and obtaining a new loan, an estimate of your closing costs will be provided to you as required under the Real Estate Settlement Procedures Act (RESPA) after you submit your loan application. This disclosure provides you with a "good faith estimate" of what your closing costs will be. A final itemized list of charges will be prepared for you as you close your home purchase or sale transaction.
This disclosure of your costs is called the "HUD-1 Settlement Statement," a standard form that clearly shows all charges imposed on borrowers and sellers in connection with the settlement (or closing). RESPA allows the borrower to request to see the HUD-1 Settlement Statement one day before the actual closing date. The settlement agent must then provide the borrowers with a completed HUD-1 Settlement Statement based on information known to the agent at that time.
Can I pay for my closing costs in installments?
The simple answer is "no." Many different parties will have fulfilled their responsibilities and expect payment at closing. The title or escrow company will disburse funds to each of those parties, pursuant to the escrow instructions at closing.
Can I pay my closings costs with a personal check?
Again, the simple answer is "no." Your closing funds will most likely be required to be in the form of a cashier's check, issued by an institution within the state of your purchase, and payable to the title company or escrow office conducting the closing. A personal or out-of-state check could cause a delay in your closing due to the delay required to "clear the check."
How much can I expect to pay for Title Insurance?
This point is often misunderstood. Although the title company or escrow office usually serves as a meeting ground for closing the sale, only a small portion of your total closing fees are actually for title insurance protection.
Your Realtor or title company representative can give you an exact amount. The title policy you pay for is good for as long as you and your heirs own the property.
Why are separate owner's and lender's title insurance policies issued?
Both you and your lender will want the security offered by title insurance. Your home is an important purchase, and you will want to be certain your home is yours, all yours. Title insurance companies insure your rights and interests in order to protect you against claims. Your lender is looking to insure the enforceability of their lien on your property and the "marketability" of your loan. What is "marketability?" Your local lenders will "originate" your loan, but often, they will sell it to an agency or investor. This investor, who may never see the property, needs to know that he has a valid and enforceable lien. Title insurance is the way of making certain. Without a current title policy, the loan is essentially unmarketable.
What does my Title Insurance dollar pay for?
Title insurers, unlike property or casualty insurance companies, operate under the theory of "risk-elimination." Risk-elimination can only be accomplished after intensive risk identification.
Title companies spend a large portion of their revenue each year collecting, storing, analyzing and maintaining official records regarding title to real property. Issuing a title insurance policy is highly labor-intensive, based upon the maintenance of a title "plant" or library of title records, in some cases dating back over hundreds of years. Each day, recorded documents affecting real property are posted so when a title search on a given parcel of property is requested, the information is already available for retrieval. Trained title examiners can identify the rights, if any, others may have in your property, such as liens, legal actions, disputed interests, rights of way and other "encumbrances" on your title. Before closing your transaction, you can seek to "clear" those encumbrances, which you do not wish to assume.
The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise. Of course, this is impossible in an imperfect world, where human error and changing legal interpretations make 100% risk-elimination impossible. When claims do arise, title insurance companies have claims personnel to make sure your property rights are protected under the terms of your policy.
To conclude, with your title insurance policy, you are paying for a team of professionals who work together to deliver you a title insurance policy that represents "protects your ownership of the real property you bought."
Where can I get straight answers on Title and Closing costs?
Your first stop for all real estate-related questions should be with your Realtor. But, don't be surprised if he or she refers you to a title or escrow company representative who can give you the most complete and accurate answers any of your questions.
