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Closing is the final step when buying or refinancing a home. This meeting usually takes place at an escrow company,
title company or attorney’s office, where you sign the title and mortgage documents and pay appropriate closing costs.
When buying, ownership transfers to you after all documents have been signed and recorded and monies paid.
If your closing date is also your move-in date, be sure to:
- Ask for the keys to your new home and consider changing the locks.
- Collect all appliance and systems’ warranties.
- Request the names of contractors who have worked on the home.
- Ask about the location of utility cutoffs, security system combinations
and any other information that may help maintain your new home.
Limited Power Of Attorney
Executing a limited power of attorney (POA) or letter of authorization in advance of closing can
help you avoid last-minute problems on or before closing day. A POA lets you give a trusted individual
the authority to act on your behalf if you cannot attend closing.
Closing Costs
Closing costs usually range from 2 percent to 4 percent of the loan amount for your home.
If you are buying a home, these costs — while traditionally paid by the buyer — are negotiable.
They may be paid by the seller or split between the two parties, unless prohibited by the type of
loan you are getting.
You can expect to pay for:
- Attorney's fees, which may be billed as a lump sum or itemized.
They may be paid at or before closing.
- Credit report, which furnishes lenders information about your history of repaying debt.
- Escrow/title company costs, which pay for escrow companies to handle
all paperwork and distribute funds. These costs vary according to the price of the home.
- Home warranty programs, usually payable at closing if applicable. Home warranties
provide year-long protection from a breakdown of many household systems, including plumbing, water heater,
heating and cooling systems and appliances.
- Loan origination fee, approximately 1 percent of the loan amount and
charged for preparing documents and funding the loan.
- Pest inspection for termites and other wood-destroying insects is required in most
states and is often a lender condition for granting a loan. If insects are found or damage is present,
the home must be treated and repaired. Inspection costs vary. Who pays them is usually negotiable,
although the VA requires that they be paid by the seller.
- Recording fee charged by your local government to process paperwork
connected with recording the real estate purchase.
- Survey fee for having the property boundary lines measured by licensed
engineers or surveyors to determine its area and attest to its boundaries. Not all states require
surveys, but they are a good way to safeguard your investment.
- Title search and insurance fees, which vary by state and price of the home.
An escrow or title company ensures the home’s title is free from any legal encumbrances before it
is sold. Title insurance guarantees that all known and recorded issues have been reviewed and noted.
Check for policy exclusions and make sure you understand them. The lender requires its own title policy
to insure a valid lien on the property.
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At closing, you may also be asked to make payments on several recurring charges. These include:
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Private Mortgage Insurance (PMI)
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Protects the lender if you default on your loan. If you cannot put at least 20 percent down
and wish to avoid PMI charges, you might consider a second mortgage (or Purchase Money Second).
Discuss this option with your lender and your tax professional.
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Homeowners insurance
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Typically, you pay the first year's premium in full, plus two monthly payments, which are
used to create an escrow account from which future payments are made.
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Prepaid mortgage interest
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Most lenders require you to pay for the mortgage interest that will accrue daily between the
closing date and the end of that month.
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Property taxes
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The escrow company will prorate your share of the property taxes. You typically will be
required to deposit money on reserve for future taxes.
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These costs generally must be paid with your mortgage payment if your down payment is
less than 20 percent. With down payments equal to or greater than 20 percent, PMI is not
required, and you may choose to pay insurance and property taxes separately. Consult your
lender for more information.
For More Information
See Steps For Refinancing A Home for more information.
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Selling A Home
Selling A Home
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