Once the contract is written, the job of a good Realtor has really just begun. So has the job of a host of people including lenders, attorneys, title companies, insurance agents, home warranty companies and so on.
The beginning: Writing the contract.
Once the contract is written, the closing process is underway. (This document is geared toward the Richmond Virginia Market and there are minor to major differences in other areas of the state and country.) The contract must be sent to the following parties:
Lenders
- Attorneys/Settlement Agents
- Both Real Estate Firms
- Buyers and Sellers
The closing process happens on several different levels before it all comes together at the end.
Lender Role:
The lender process starts before the writing of the contract with the purchaser beginning their approval process.
Once the lender gets the actual contract, the buyer usually has a set number of days to start the formal loan application process if that has already not begun.
At application time, the lender will have the purchaser fill out a formal application called a Form 1003 which is a HUD Document. That document is the formal application to apply for a loan.
The lender will also produce the "good faith estimate" of cost relating to the purchase. It's important to note that the good faith estimate is made up of charges from several sources - many of which are out of the control of the lender. This good faith estimate should closely match the final HUD1 Settlement Statement if done correctly.
The lender will be estimating not only his costs, but the attorney fees and charges, title insurance charges, local and state taxes among other things. Many lenders cut short these charges giving the consumer a false idea of their actual cost of purchasing a home.
The lender's obligation is to prepare the most accurate assumption of cost possible. If a lender does not accurately forecast property taxes, state and local taxes or any other expenses, the buyer could owe thousands more than they anticipate.
The lender will collect all appropriate documents, all supporting documentation, and collect an application fee for appraisal and credit report. Once the documents are complete/collected, the lender will give the borrower a list of any other documents that are still needed before loan approval can be granted.
Appraisal
Next the appraisal is ordered. This can be delayed by the whole house inspection because once the appraisal is done, the appraisal fee is not refundable.
Next the loan put into automatic underwriting. If the loan is not a government backed loan, underwriting happens by review of an underwriter. Once automatic approval or just plain old approval is given, guidelines for approval are matched with documents collected.
Once all completed docs match the approval conditions and application is done, the loan is submitted to underwriting for validation of the documents. Once the validation is compete, the loan is forwarded to the closing deptartment and all parties concerned - such as the attorney - to set up closing.
The purchaser's settlement agent/attorney
In Virginia, as in many states, an attorney or a settlement service can conduct a closing. However, in Virginia only an attorney can prepare a deed which is the major role of the seller's closing agent. It is the buyer's settlement agent that does the vast majority of the work, including the title search, preparation of the HUD 1 Settlement Statement and the actual buyer closing.
Once the settlement agent for the buyer receives the contract, a whole host of events are set into motion including the ordering of:
The survey
- Title Search
- Mortgage payoffs (sometimes done by sellers' attorney)
- Taxes
- Oil/Gas/HOA prorated fees
Title Insurance:
One of the first things to be ordered by the closing agent for the buyer is the title insurance. This might be delayed if the closing is projected to be very far out. Once the tile insurance is ordered, the actual title company will order their title search. The title search is a search of County/City records that seeks to establish a clear line of ownership without defects. A defect to a title search could include an unrecorded deed of trust, an unpaid lien or any type of cloud over ownership of the property.
In order for the title company to issue a title insurance policy over the property, all clouds to title must be cleared.
Survey:
A survey gives every homeowner a clear border line to know exactly what they do or do not own. If your property line is crossed, then an encroachment has transpired, and a Real Estate Lawyer will be needed to resolve disputed claims. It is common not to have a survey done in many areas if the buyer is obtaining "enhanced" title insurance which covers defects to surveys. Just because it is common doesn't make it a good idea.
Mortgage Payoffs:
The sellers' attorney or the purchaser's attorney/settlement agent may order the payoffs for the loans/liens against the property. The HUD1 will show these pay off amounts.
County/City Taxes
The buyer's settlement agent is responsible to make sure all taxes are current on the property. They also will collect 3-4 months of taxes in advance to that go into the lender's escrow fund.
Propane/Oil/Home Owner Association prorated fees
The settlement agent is also responsible for collecting information on prorated fees for oil, propane, homeowner's association dues among other items.
Realtor for the Buyer
During the process the Realtors are responsible for the following events:
Realtor for the Seller
Insurance Agent
The Purchaser needs to choose the company that will provide their homeowners insurance. The settlement agent must have information from the homeowners' insurance company before the final settlement statement can be completed.
At closing the settlement agent typically will collect 15 months of homeowners' insurance premiums that will go toward the lender's escrow.
As closing day approaches, the attorney, lender and Realtors will collect documents needed per the contract and conditional loan approval.
Prior to closing the lender will send closing instructions to the purchaser's closing attorney/settlement agent. Those instructions will include information on fees to include on the HUD1 settlement statement.
The closing agent will send the final settlement statement to the lender for final approval. Once the lender approves the HUD1 Statement, the closing attorney has the green light for closing. It is only at this point that the lender can prepare the final closing packet and forward it to the settlement agent.
Preparation of the HUD Statement:
The settlement statement is a two page document that shows all cost relating to the seller and buyers' sides of the transaction. This form is uniform and fees have designated places to appear.
It is important to note that before a final HUD statement can be prepared and delivered to the lender for review, all fees must be shown. If the buyer has delayed obtaining their homeowners' insurance or a payoff cannot be obtained, the final HUD statement cannot be provided. This is why so many buyers do not get their final numbers until last minute.
Also note that the HUD statement does not have a place for repair or decorating credits. A seller can only pay closing cost, buyer prepaid items and points/origination fees.
Closing Day:
Final Walk thru:
It is important that the Realtor and his or her purchasers conduct a final walk through of the home. They should be looking to make sure all home inspection items are done properly. If there were major items they might want to bring their inspector back much sooner. You also are looking for any new items that might have occurred.
Don't skip this step because once you close you lose most of your leverage with a seller to correct deficiencies.
The Closing Table
Seller Closing - In the Richmond area buyers and sellers have their own separate closings. The seller will typically conduct their closing several days in advance. Their closing consists of signing the deed and some other papers for the IRS. In other areas all parties come together at the end.
Buyer Closing -
Hopefully the buyer has had a day to review the HUD statement but often the final HUD is not approved until a few hours before closing. With the final figures in hand, the settlement agent can instruct the buyer how much money is needed to close. That number is typically a few dollars higher or lower than projected by the good faith estimate. It is almost impossible for the lender to be 100% accurate in regard to the final closing numbers.
The closing agent will instruct the buyer to bring certified funds to closing. At closing it is very normal for the buyer to have to write a personal check for small differences or to get a small check back at closing.
The settlement agent will take the buyer through numerous documents including:
Loan application
- Mortgage
- Deed
- Survey
- HUD statement
- Termite Inspection
- Well & Septic Inspection
Once all the documents are signed, the buyer receives their keys. However, they legally don't own the home yet.
After closing the settlement attorney/agent must make one last check with the county/ciy to make sure there are no new liens against the property. They will record the old mortgage as satisfied and file paperwork regarding the new mortgage.
Once the settlement agent received the green light for the runner, then funds are dispersed. At this point the old mortgage is paid off and all other funds held in escrow by the closing agent are released.
Post Closing
Once the closing has occurred, the settlement agent will file information so that the tile insurance policy is issued.
Several weeks after closing the new home owner will receive their title policy in the mail.
;)
;)
The way this market is, we are definitely earning our money in the negotiations phase!