You always hear the exciting words, “It’s closing day!” But, what does that actually mean? closing day in the real estate industry is the day the title transfers to the new owners of the property and all the paperwork is signed. The legalities of the contract become official, and you officially become a homeowner!
On closing day, you meet with many different people. You and your agent meet with the sellers, their realtor, a representative from a lending institution (typically your loan officer), and a representative from the title company, so you can properly sign the documents to transfer the title to you. The buyers and seller will sign a Closing Statement that outlines all charges associated with the closing of the property. The finances have been disclosed and reviewed by all parties, including you, so there are no surprises. If financing is obtained, you, the buyer(s), will sign all necessary paperwork from your lending institution. This includes a promissory note, that indicates you are responsible for repaying the loan, the mortgage or deeds of trust, which serves as security to the lender from the loan, along with additional lending compliance paperwork. The mortgage or deed of trust gives the lender the right to sell the property if you fail to make the payments.
All transactions are paid in the form of a Cashier’s Check, and some of these payments will go into an Escrow Account, which is a neutral depository held by your lender for funds that will be used to pay expenses incurred by the property. These expenses can include taxes, assessments, mortgage insurance premium, and property insurance. Each time you pay your mortgage payment, you will pay one-twelfth of the annual amount of these bills. When the bill is due, the lender pays the bill out of this account. At closing, it may be necessary to pay enough into the account to cover these amounts for several months so the funds will be available to pay the bills when they come due.
Closing day can come with a lot of confusing vocabulary. You may be familiar with it, if you have bought a home before. If you are a first-time home buyer, then this list of closing cost vocabulary will help you understand all the terms associated with closing day.
Application fee- Fee charged by lender to pay for fixed costs related to mortgage loan processing, such as appraisal, credit report, and underwriting
Closing fee- The fee charged by the agent who prepares the closing documents and closes the loan on behalf of the lender
Commitment fee- This is often called an origination fee and is generally computed at one percent of the mortgage amount, or an amount as charged by lender.
Discount points- Each point is equal to one percent of the mortgage amount. Points are used by the lender to adjust the yield on the mortgage when it is sold to an investor. By paying more points, the borrower can obtain a lower mortgage interest rate.
Funding fees- Normally applicable on VA loans only, equal to a percentage of the loan amount. The fee is due at closing or may be needed to the loan amount and financed.
Homeowner’s insurance- One-year premium is due in advance of the time of closing.
Mortgage insurance- Insurance required by the lender when the down payment is less than 20 percent. In the case of loan default, this insurance reduces the lender’s loss.
Pre-payables- Adjustment to escrow accounts from the date of closing to the date of the first time payment. Interest is paid through the end of the month of closing; taxes are paid through the end of the month of closing, plus the following month. Two months of PMI may be collected. Two months of homeowner’s insurance may be collected. A homeowner’s insurance policy must be provided along with a receipt showing that the first year’s premium is paid.
Processing fee- Fees charged by the escrow processor (either working for the escrow company, title company, or real estate agency) for administrative escrow services performed from the point-of-contract through closing.
Recording fees- Fees charged by state and municipal entities for entering the closing
Survey fees- Fee usually required and used by the lender to check for encroachments from within or from outside the subject property.
Title insurance- Provides protection for lenders and homeowners against financial loss resulting from legal defects in the title
Underwriting fee- Fee usually included in the application fee, although practices do vary from lender to lender.
Flood certification fee- Lender must determine if the home requires flood insurance
Tax service fee- A one-time charge collected at closing which arranges for the payment of real estate taxes from the borrower’s escrow account to the taxing authority or verifies payment to the taxing authority.
**We are a local Commercial and Residential Real Estate Brokerage and team. Our mission is to give Western Kentucky buyers and sellers an exceptional real estate experience! The advantage of working with our team is having a group of professionals who are skilled and specialized to serve your needs versus an individual agent trying to be a master of all trades. Innovation, creativity, and a consultative style drive our process that will help you effectively and efficiently, whether it’s residential or commercial real estate. For more information contact us directly at 270-908-0020 or www.WeSellPaducah.com.**