What takes place during the settlement or closing? Here are some definitions that will help explain the process.
Preparation for Closing – As part of the preparation for closing, the title company performs a title search to determine if there are any liens or assessments on the title. Provided the title is deemed ‘clear,’ the closing proceeds as planned and the attorney or title company issues a title commitment. All paperwork for changing the title / deed and title insurance is prepared, and a final closing date is confirmed with all parties.
Closing or Settlement – The house is sold when the buyer and seller have reached a “meeting of the minds” and the contract has been ratified, or all signatures are final. The settlement, or closing, takes place when all money is transferred, the new title is transferred and the deed is signed. In some states the process is “escrow”, where the money is transferred at a later date than the closing, sometimes referred to as a “dry settlement”. In Maryland there are only “wet settlements”, meaning the money must be transferred at the time of settlement.
Closing Procedure – The completion of two basic issues are required to go to settlement:
1. The requirements made in the real estate sales contract are fulfilled, The buyer’s issues that need to be resolved: The title, seller’s deed, any documents demonstrating the removal of liens and encumbrances, the survey, the results of any inspections, and the termite inspection report. The seller’s Issues: Receiving payment, compliance with contract requirements.
This part of the process includes lots and lots of signatures.
2. The mortgage lender disburses the loan funds. The buyer, seller, their respective agents, and the closing agent or lawyer are usually at the closing. The settlement should only take about 1 hour, in most cases.
3. The representative from the title company or attorney will then record the transaction and deed with the appropriate municipality.
Closing Statement – The Buyer and Seller should get the Maryland Closing Disclosure Form 72 hours before the settlement so that they know all the charges that they will be responsible for. The statement is an estimate, but should be very close to the exact amounts, within 10% of moneys quoted. Buyers should bring a certified check, or will have made a wire transfer, which is more common, with the amount owed. Also, they should bring their checkbook for any small discrepancies.
Sometimes sellers will need to bring a certified check as well, but will know ahead of time.
Closing Fees – There are several categories of fees:
1. Broker’s commission: paid by seller. Plus any Administration Fees.
2. Closing Attorney’s fees.
3. Transfer Tax: Split 50/50, unless otherwise negotiated. Maryland waives the first-time home buyer’s half of the fees.
4. County Taxes
5. Recording expenses. Deed preparation fee, title binder, courier fee, etc.
6. Title expenses: In Maryland the buyer orders a title search and a binder for title insurance.
7. Loan Fees:
- The loan origination fee is 1 to 2 % of the loan, paid by the buyer.
- They may also have discount points to buy down the interest rate.
- There are other survey fees,
- appraisal fees,
- Document fees,
- Certification fees,
- Credit Report charged to buyer,
- Home owners insurance,
- The lender should have given a Closing Disclosure (Here is an example of a CD) to the buyer when they made loan application.
8. Insurance Reserves and Tax Reserves: Most lenders require buyers to provide reserve funds or escrow accounts to pay for future real estate taxes and insurance.
9. Any unpaid or prepaid Items: HOA dues, utilities, fuel and water
Buyers: Before your lender gives you a good faith estimate, ask your lender for a ball-park estimate.
Sellers: Ask your agent for a seller’s net sheet for a ball-park estimate.