Closing Cramps, Costs and Escrows
A real estate CLOSING can be defined “as a torturous process designed to induce cramping in a home buyer’s hands by requiring their signature on countless pieces of documentation that nobody has ever read”.
Or, “the process whereby the sale of a property is consummated with the buyer completing all applicable documentation, including signing the mortgage obligation and paying all appropriate costs associated with the sale”. All the costs, fees and payments related to completing the purchase transaction are outlined on the settlement statement (HUD-1 form). The settlement statement is the document detailing the final financial arrangement between a buyer and seller and the costs paid by each.
Many home buyers are confused by the numerous individual fees that appear on their Good Faith Estimates as well as their settlement statements. Additionally, buyers perceive all the fees as closing costs: they’re not.
There are fees that are considered “prepaids”. These are charges for taxes, insurance, etc. that you pay at closing in advance of when they are actually due. They are then held in escrow by the lender until they come due for payment. At the time property taxes or homeowner’s insurance premiums are due, the lender pays the amount due from the buyer’s escrow account. This saves the buyer from having to keep up with paying these fees when they come due each year since an amount of each month’s mortgage payment is put into escrow to cover these costs.
Fees that are considered closing costs are all appropriate costs generated by the sale of property which the parties must pay to complete the transaction. Costs may include appraisal fees, origination fees, points, lender fees, attorney’s fees, title insurance, recording fees and taxes. Anytime during the mortgage process, if you are unsure of what a fee is for or why you are paying it, ask your loan officer to explain it to you.
As you plan for closing on a new home, you can always prepare by buying one of those little squeeze balls and begin exercising that signature hand. Just picture Richard Simmons, to the sound of some oldies classic, and squeeze…….one and two, squeeze, three and four, come on, everybody……..feel the burn! 