You’re almost there. After months of shopping for the perfect home, answering invasive questions to borrow a not-so-small fortune and determining that your sweet abode is as solid as it looks, the end is in sight.
But before the movers can get to work, you need to go through closing. Closing or settlement is the final step to buying a house. It is when the ownership of the home is officially transferred to the buyer.
The first step to closing is picking a title insurance company. To find a good title company, home buyers shouldn’t rely solely on their real estate agent’s recommendation, said Todd Ewing, founder of Federal Title and Escrow.
“Consumers don’t always shop for it,” he said. “But they should compare and learn about different services.”
Home buyers should conduct the same kind of research they do for other major purchases, weighing costs against a firm’s reputation, history and size. Many buyers might prefer a title company that is local but is backed by a national title insurance company.
Title insurance comes in two types — one for lenders and one for homeowners. The one for lenders is paid by the buyer and is mandatory. The one for owners is listed as “optional” on the standard disclosure form home buyers receive three days before the closing date and again at the closing. But most real estate lawyers agree that it isn’t something to skimp on.
“The most important consumer protection for someone buying a house is title insurance,” said Cecelia Adams, owner of RSI Title.
Owners’ title insurance covers their investment in the case of a title dispute. If earlier owners of the house didn’t pay their property taxes and the discrepancy is discovered in the future, the new owner — you — could be on the hook for that payment. Or if former owners divorced and only one of them was removed from the deed to the property, the other half of the couple might legally have a right to the house.
These issues crop up more often than many home buyers realize, Adams says.
“Thirty to 40 percent of all our title reports come back with title issues,” she said.
A title company can clear up many of these findings, and title insurance will protect the buyer from future problems that may arise. It’s also a one-time purchase.
The title company’s work isn’t done after the buyer chooses title insurance. The company’s representatives will guide home buyers and sellers through the last step in buying a house: the settlement.
The closing day is when ownership of the home is legally transferred from the seller to the buyer. In the past, it was usually a one- to two-hour event that occurred around a big table with the buyers, the sellers, real estate agents on both sides, possibly other lawyers or lenders, and a representative of the title company who acts as the master of ceremonies. These days with the advent of electronic signatures, fewer people are at the table. Who is involved in this transaction differs depending on the state in which you are buying a home.
Buyers should bring photo identification, a checkbook, proof of homeowner insurance, a cashier’s check or documentation of the wire transfer and a readiness to sign a lot of documents. These include real estate transfer documents, such as the deed to the house, as well as a number of home loan documents — the mortgage note and the closing disclosure form.
Home buyers should have closely reviewed the closing disclosure form when they received it, and the document that’s presented at the closing should be the same. Don’t be surprised by small discrepancies, Ewing said.
“We frequently see a difference in the $50-to-$400 range, due to last-minute add-ons for certain items,” he said.
Such items might be administration fees that may not have been noted earlier, reimbursements for homeowner-association payments, or home warranties. That’s where the checkbook comes in handy for paying these additional costs.
Ewing added that if the date of the closing is pushed back even slightly, a home buyer could be responsible for another three months of property taxes — and that bill could be in the thousands. But that’s rare. By and large, there should be no surprises at closing.
Down payments and closing costs are paid at closing. If a down payment is being wired, make sure to start the process in advance to avoid unnecessary delays. A wire transfer can take a couple of days, and that doesn’t include gathering account information.
Adams warned about recent scams where hackers break into title companies’ email accounts and contact prospective home buyers with instructions for conducting wire transfers. Too often, unwary home buyers are duped into sending money to the hackers’ bank accounts.
“We say to buyers, ‘Before you wire the money up front, call a number that’s been independently verified’ — from the Internet, or from a sales contract — ‘before you send your wire. Don’t just use a number from an email,’ ” she said.
With a little care, that won’t occur. Instead, the title agent will record the transfer of ownership and hand over the keys, and another home seeker can become a satisfied homeowner.