The Closing Process  From Acceptance of Offer to Closing Once an offer has been accepted, the real estate agents have to make certain that all of the necessary documents have been turned into their office as well as the title company for processing. This task can be rather daunting as there are many issues which have to be checked for accuracy so that they are legally acceptable. Once the Title Company has received the contract, they will begin their primary purpose which is to get a preliminary title report, which is used to confirm that the seller is the legal owner of record of the property and that there are no unsettled liens or other claims against the property which could include real estate taxes or special assessments. Homeowner's Insurance Before closing, the buyer will need to obtain homeowner's insurance on the property. This is a requirement by the lender who wants to make certain that the home is covered by insurance and thus, reduce the exposure that the lender would have. Disclosures, Inspections, and Contingencies It is the responsibility of the seller to disclose any material factors regarding the property which may or may not be evident to a prospective buyer. That disclosure can include any property defects or any lawsuits or liens regarding claim to ownership of the property. Failure of the seller to disclose known issues could come back and cause the seller legal problems. Upon acceptance of the contract, the buyer has the responsibility to arrange for an independent home inspection by a qualified technician. The real estate agent can provide a list of qualified inspectors. That cost is paid by the buyer but it is money very well spent as it will provide the buyer with a list of defects which must be addressed. The buyer can request the seller to correct any or all of the defects or to offer money compensation for the buyer to correct. Of course, that list is negotiable and the seller may choose to correct none, some, or all of the items on the list. Generally, an agreement is reached which is acceptable to both parties. However, there are times when agreement can not be reached and the contract is terminated. Having a building inspection, while advisable, is not a requirement on the part of the buyer. The building inspection should also include a termite and a sewer line inspection. In some cases, it is also recommended that there be a radon inspection. As to termites, in the St. Louis area, there is a saying: Homes in St. Louis have termites or will have termites. Appraisal of Property The lender will arrange for the property to be appraised. The appraisal's report will describe the characteristics of the home and comparable property values within a reasonable radius of the subject property. The report is used to determine the value of the property as it relates the requested loan. Since May 1, 2009, the appraisers have become much more conservative in their evaluations of the property to avoid the type of inflated home prices that appraisers were subject to pressure from lenders in the recent past. In situations where the appraisal comes in under the agreed upon contract price, there are issues that need to be resolved. Those issues need to resolved and might require the seller to agree to the lower price or to decide not to seller. Another alternative would be for the seller to request another appraisal. Loan Approval The next step is that the buyer's lender with notify the title company that the buyer's loan request has been approved. These days, that process is taking considerably longer as the lenders have been swamped with refinancing of existing loans. Going thru the underwriter's has been taking one to two weeks longer than previously. I used to assume that 3 weeks from acceptance of a contract to closing would be adequate. Today, that process is taking 3-5 weeks. Once that loan has been approved, the lender will forward the funds to the title company for closing. Request to Payoff Seller's Existing Mortgage Once a contract has been agreed to, the seller's agent will request the pay-off amount for the seller's loan. That amount will include not only the balance due but also accumulating interest to the date of the closing. The title company will also request any release documents. Cashier's Check Before the day of closing, the title company will notify the buyer of the dollar amount that the buyer needs to bring for closing. That amount needs to be paid by a cashier's check. The buyer's agent will also notify their client. The buyer's agent will also have received a form called HUD-1 which itemizes the financial transaction. "Sign-Off" and Closing Appointment The closing appointment generally takes about one hour and requires the signing of a considerable number of documents. The title company's representative will explain all of the documents as well as notarizing them. What are Closing Costs Probably one of the more confusing elements of closing are understanding the costs that are associated with closing. While it is easily understandable what the downpayment cost, the many other costs need explanation. Closing costs are the total cost of completing the transfer of ownership. Closing costs range between 3% and 5% of the total amount. Depending upon the mortgage lender you choose, closing costs include fees for: - Loan Origination
- Loan application
- Appraisal
- Document preparation
- Attorney fee's (if any)
- Escrow agent's services
- Credit report
- Any property tax adjustments
- Any condo fee adjustments
The Real Estate Settlement Procedures Act (RESPA) requires that mortgage lenders give you a "good faith estimate" of all of loan-related fees. Again this is just an estimate. A day or so before closing, the title company will provide a "HUD-1 statement" which will give you the exact amount of the closing costs. These costs plus your down payment will need to be covered by a cashier's check. So that you don't have any surprises, it is best to anticipate these costs so that you are financially prepared to come to the closing table. Any questions, please give me a call at 314-570-5125 or send an email to ronaldgorman@me.com | | Ron Gorman, Realtor | | Coldwell Banker Gundaker | | St. Louis Office | | 4320 Hampton Ave | | St. Louis, MO 63109 | | Office: (314) 351-6005 | | Cell: (314) 570-5125 | | Fax: (314) 667-3016 | | Email: info@stlcityhomes.com |
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