Nolo's Essential Guide to Buying Your First Home (69 page)

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Authors: Ilona Bray,Alayna Schroeder,Marcia Stewart

Tags: #Law, #Business & Economics, #House buying, #Property, #Real Estate

BOOK: Nolo's Essential Guide to Buying Your First Home
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Assuming you find no problems, the total on the closing statement is the amount that you’ll need to show up with at closing. Have your real estate agent, closing agent, or attorney confirm that the amount is, in fact, final.
Make Payment Arrangements
 
For convenience, many buyers pay their entire closing costs in one lump sum. (The closing agent saves you from having to write separate checks to everyone.) We’re assuming you haven’t already deposited money with the closing agent, which some buyers do several days in advance—usually more than they think they’ll need, with the idea of getting a refund after closing. This allows buyers to use a personal check, which you can’t do at the closing itself.
Of course, if you’ve got money coming from different sources (a bank account here, a family member there), compiling it into a lump sum before giving it to the escrow agent might not actually be so convenient. The important thing is to make sure you’ll be transferring the money—every last cent of it—in an acceptable form. That usually means either a certified or cashier’s check or having funds wired directly from your bank or investment company. A briefcase full of five-hundred-dollar bills would probably work, too, depending on how many bodyguards you normally travel with.
If wiring some or all of the funds is your plan, double check how much advance notice your bank needs. Wiring is usually a same-day deal, but not always. One of this book’s authors nearly had her California house closing delayed because the wired funds mysteriously got stalled in an office in Texas.
Personal checks aren’t usually accepted at the closing, because of the uncertainty over whether they’ll clear. Even so, it’s a good idea to bring your personal checkbook to the closing and make sure a few hundred dollars will be in your account. This is in case any last incidentals crop up.
 
Bring our checkbook.
Everything had been going smoothly with Meggan and her sister’s joint purchase of a house in
Massachusetts. They arrived at closing with a cashier’s check for the exact amount they’d been told to bring. But, as Meggan describes, “For some reason, the amount was too low, by $500. My sister broke down crying, saying, ‘I knew this was too perfect, something had to go wrong.’ Since she’s my older sister, I started worrying, thinking maybe I should be in tears, too! Although there was some question about whether they’d accept our personal check for $500, we had a prominent local attorney with us, who said, ‘They’re good for it, I’ll cover it if it doesn’t clear.’ So the deal went through.”
Read Your Documents and Raise Any Last Issues
 
By the time you walk in the door to your closing, all possible negotiations and issues should have been settled. Closing day is not the time to tell the seller, “You never removed the pet door!” Nor is it a good time to ask your mortgage broker what this line about “prepayment” means.
Start by reviewing the escrow instructions, and any letters or instructions from your lender, to make sure you’ve done everything requested. Also ask your mortgage broker and real estate agent to give you complete sets of any draft documents that have been prepared to date and to explain to you (if they haven’t already) what the documents mean. Unfortunately, some documents might not be prepared until right before closing day, but you can ask for the standard templates, for example, of the promissory note and mortgage.
Finally, call your real estate agent, closing agent, and mortgage broker to double check that they’re not waiting for anything else from you. (And, just in case, that they still have tomorrow’s closing on their calendar!)
Prepare What You’ll Bring to the Closing
 
Other than money, the buyer is expected to bring only a few documents, including proof of homeowners’ insurance and an original copy of any inspection reports. As a practical matter, your real estate agent may bring these or have forwarded them to the closing agent. But if you’re in doubt, or think you may be the only one holding any possibly relevant document, bring it. Also bring receipts or other proof of things you’ve already paid (such as inspection fees or homeowners’ insurance) in case any last questions arise about whether these can be deducted from your closing costs.
Finally, bring proof of your identity. Many people forget a driver’s license, passport, or other photo identification. You’ll need to show it to the notary, who stamps the documents after you sign them.
The Drum Roll, Please: Attending the Closing
 
No matter what time your closing is scheduled for, plan to take the day off work and to get there in plenty of time. Although a normal closing lasts no more than an hour or two, surprises are common. Also, your closing agent may have more than one closing scheduled that day, and an earlier one might run over.
Whether or not you’re meeting in one room, who signs the documents
first
isn’t really an issue. The seller could, for example, sign the deed transferring ownership to you before you’d signed anything—but would have the protection of knowing that the closing agent won’t record the deed until you’ve signed your documents and the loan has been funded.
We’d love to tell you to read every document one last time before signing, but that’s probably not realistic—it would take hours. By now, you should have seen many of the documents in draft form and read them when you weren’t under time pressure. As adviser Russell Straub says, “It’s important to get your questions answered, but if you wait until the closing to read everything, you’re really throwing sand in the gears.” Just listen carefully as your team of professionals explains what each document is; compare the filled-in portions and numbers (not the boilerplate) with your own notes; and raise questions about things that don’t appear as you’d expected. If you have an attorney representing you (and not simultaneously representing the seller), you can rely on the attorney to tell you what a document generally means and whether it’s safe to sign.
Closing Documents, Part One: Your Mortgage Loan
 
The first set of documents you’ll deal with at the closing are those concerning your loan. Makes sense: Unless your financing goes through, there’s no point in continuing.
 
TIP
 
Expect a little sticker shock.
Annemarie Kurpinsky, a California real estate agent, says, “Buyers tend to think in terms of the house’s purchase price—as in, ‘I’m buying it for $800,000.’ But the closing can be daunting, because you’re now confronted with loan documents showing how much you’ll REALLY be paying, after the interest and other costs are added up. To relax, try focusing on all the reasons you chose this house in the first place, on how it will be a good investment over time, and on the fact that you don’t need to pay this all at once!”
 
Before you sign, look at every number to make sure it’s what you were expecting and that no one mistakenly added any zeros. Below is a summary of the main documents you’ll be given. However, there will probably be more. For instance, your lender may have you sign an affidavit promising that you’ll live in, not rent out, the house.
•
Promissory note, or “Note.”
You’re stating that you’re borrowing X amount of money and personally guaranteeing to repay it.
•
Mortgage or Deed of Trust.
Here’s where you agree to have a lien put on your house as security for the loan. It turns your house into collateral, which the lender can claim in foreclosure if you fail to repay or to otherwise follow the terms of the Note (you “default”). The lender will record your mortgage with the appropriate local government office.
•
UCC-1 Financing Statement (co-ops only).
Since co-op financing involves no mortgage, your lender may instead fill out and record this document, to show its claim on your property interest.
•
Truth-in-Lending (TIL) Disclosure Statement, or “Regulation Z form.”
You should have seen an earlier draft of this, within three days after applying for the loan. Here, the lender will break down all the payments you’ll make in connection with your loan. It will confirm your interest rate, the annual percentage rate (“APR”), and the total cost of the loan over its life.
•
Closing Statement, Settlement Sheet, or HUD-1 Settlement Statement.
This is the statement described above, usually prepared by your closing agent using a HUD-1 form. It itemizes each payment to be made by you and the seller, not only for the house, but for other costs such as services performed in connection with the sale, insurance premiums, paying off liens, and more. (The seller will need to sign it, too.) For more information, see
www.hud.gov
(click “Buying,” then “Sign papers,” then “Settlement Costs and Helpful Information”). Before stuffing the HUD-1 statement into your files, check whether your closing agent included a refund check with it (for any extra money that you deposited ahead of time).
•
Monthly payment letter.
This tells you how much money you’ll pay in monthly loan principal and interest. It may also include amounts that your lender requires you to put into escrow each month for payment to third parties such as the tax collector or insurance companies (homeowners’ or PMI). Your closing agent will take care of setting up this account on closing day.
 
Closing Documents, Part Two: Transferring the Property
 
Once your financing is taken care of, it’s time to turn to the documents that transfer the property to you. At a minimum, these include the items below, though others may be added depending on where you live, for example, to account for local transfer taxes. Some documents you won’t even have to sign, you’ll just receive them from the seller: perhaps a certificate saying that the house has smoke detectors, or a certificate of occupancy showing that the house has passed a municipal or local inspection for basic habitability and legal compliance.
•
Deed (or “warranty deed”).
The seller signs this to tell the world that title of the property has been transferred to you, the new owner. Make sure your name is spelled correctly and that it accurately shows the manner in which you and any cobuyers have opted to take title (for example, as joint tenants). Your closing agent will, as the last step in closing on the property, file a copy with the appropriate public records office.
•
Co-op buyers only: Stock certificate and proprietary lease.
Instead of a deed, co-op buyers receive a stock certificate indicating how many shares they own in the corporation and a proprietary lease outlining their rights to live in a certain unit. Your lender will probably keep these in its files.
•
Bill of sale.
This document attests to the transfer of any personal property from the seller to you. In other words, if the sale includes any non-fixtures such as a children’s swing set, curtains, or a floor rug, the bill of sale creates a record of this agreement.
•
Affidavit of title and ALTA statement.
Here, the seller swears to have done nothing to cloud the house’s title and to know of no unrecorded contracts, easements, or leases regarding the property. The seller signs the affidavit, but both you and the seller sign the ALTA statement to finalize your request for title insurance.

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