Have you ever received a settlement statement and the bottom line to the sellet is less than expected? Often times, it may be due to underestimating the payoff amount. Here are some tips to help listing agents & sellers.
- The principal balance on the mortgage statement is not the payoff amount. The payoff balance will include the principal balance plus any accrued interest.
- Mortgage interest payments are made in arrears. If the seller has made their current monthly payment, they have only paid the interest for the prior month. The payoff statement will include the interest for the current month.
- Interest must be paid through the date that the mortgage holder actually receives the payoff check (not just the date of the closing). The attorney will usually add a few days of interest beyond the closing date to make sure the payoff amount is adequate. Any overage will be refunded to the seller by the lender.
- If the seller has an FHA loan, and your closing is pushed from the end of the month to the first or after, the attorney will be required to collect the entire new month of interest.
- If the seller had to pay to cover any shortage for taxes and insurance in the escrow account, this amount will be added back to the payoff statement.
- Occasionally, the seller will have a pre-payment penalty on the loan. These penalties are charged when the loan is paid off early, usually in the first 1-3 years. The penalty can cost the seller several thousand dollars. While the seller should have been made aware of this, it’s not uncommon for to forget or even not to know about the penalty at all, even though documents were signed at that closing agreeing to the penalty.
- Also, make sure that the seller provides their new address (if moving) so that the bank/mortgage company can send them a refund check if they overpaid.