Closing On Your Home

Settlement (or closing) is the process which passes ownership of a property from seller to purchaser. Going to settlement on a new home can be bewildering. Home buyers are usually required to sign a seemingly endless pile of documents, most of which are written in terminology not used outside of the housing industry that can be complicated to understand for a home buyer.

Before you go to settlement, there are certain important items you should know about so that you can achieve the best possible terms for yourself in the transaction.

• Ask a lender for a copy of the HUD pamphlet, "Buying Your Home: Settlement Costs and Helpful Information." Most lenders are required to provide their loan applicants with a copy of this document under the Real Estate Settlement Procedures Act (RESPA), but you will be able to shop more wisely for settlement services if you have read the pamphlet before you apply. It provides a good description of the settlement process and explains most of the expenses you will encounter.
• When you apply for a loan, the lender is required by law to provide you with a good faith estimate of settlement costs. Shortly before settlement, you will be told exactly how much you owe so that you can get a bank check. A personal check is generally not acceptable. In some instances, you may have money returned to you instead of having to pay.
• Before you go to settlement, familiarize yourself with important settlement terms.
• Important Settlement Terms

Important Settlement Terms

Appraisal Fee. An appraisal is an estimate of the fair market value of your home. Appraisals help both the lender and the buyer to determine if the sales price is consistent with the actual value. An appraiser inspects the house and the neighborhood and makes an estimate based on the price of comparable houses and other factors.The appraisal provides no guarantee that the property is free of defects. Lenders insist on an appraisal to see how much they could recover by selling your house if you default. The fee for this service may vary considerably depending on the specific characteristics of your house.

Attorney’s Fees. If the lender requires an attorney to draw up any of the settlement documents, you may be charged a fee – a flat amount or a percentage of the loan. If you hire a lawyer to assist with the settlement, you will have to pay an additional fee at or immediately following settlement.

Credit Report. The lender may charge a fee for investigating your credit history.

Earnest Money. Earnest money is a deposit paid to a seller to show you are serious about buying a house. Your receipt for this payment is called a binder. If you later buy the home, the earnest money is applied to your down payment. If not, the earnest money is returned, minus expenses for processing. Be sure that you understand the refund procedures before you make a deposit.

Escrow Fees and Accounts. Escrow involves having a third party hold funds and/or documents until you and the seller complete settlement. Depending on the circumstances of your loan, you may be asked to make monthly payments to an escrow account after you purchase your home. Money in the account may be used to pay taxes, insurance, and any other regular assessments as they fall due. Such accounts serve a similar purpose to withholding income tax from your paycheck; by putting aside money each month, you avoid large annual or semiannual payments. You may be charged a fee for the service. In some states, escrow accounts draw interest.

Sometimes, escrow agents handle settlements. Rather than you and the lender meeting to sign all of the documents and transfer money, the agent works with you and the lender separately to ensure that everything is done properly. Once again, a fee is required for this service.

Loan Origination Fee. A lender will charge a fee for the cost of processing the loan, usually calculated as percentage of the loan amount.

Loan Discount (Points). The largest of your settlement cost may be the "points" lenders require to make the yield on your loan more profitable. A point is one percent on your loan amount. If you are borrowing $50,000, one point equals $500. Points are tax deductible if they are paid separately and not deducted from the loan amount. For VA loans, you can be charged a maximum of one point, but the number of points can be higher for FHA and conventional loans.

On a 30-year loan, each point that you pay reduces your interest rate by roughly 1/8 of a percent. You may be faced with a choice between two mortgages in which one has lower monthly payments but involves paying more points up front. Annual percentage rate calculation include buyers’ points, so ask for the APR to help you make your assessment. Keep in mind that an APR is calculated on the basis of the total life of the loan. For a 30-year loan, the APR is a 30-year composite figure. If you sell your new home after a few years, the average annual cost of your points will be much higher than is reflected in the APR. If you plan to move soon, you might be better off with a loan that has a slightly higher rate but fewer points.

Property Survey Fee. You may have to pay to have your lot surveyed, especially if there is a question about the boundaries. The cost will depend on the complexity of the survey.

Recording Fee. Because title is changing hands, the transaction must be recorded with your city, county, or other appropriate branch of government. The fee covers administrative costs.

State and Local Transfer Taxes. Some jurisdictions levy taxes on the transfer of property or on real estate loans.

Settlement Costs Between Buyer and Seller. Your builder may have already paid the annual property taxes on your new home or filled up your fuel tank. When title changes hands, you must reimburse the builder for a proportional share of the taxes, any fuel that remains in the tank, and any other prepaid costs.

Title Search and Insurance. A title search involves having someone look through public records to see if anyone else has a claim to your property. A lender does not want to lend you money only to learn in the event of foreclosure that somebody other than you has a prior claim to the property.

You will normally be required to purchase lenders’ title insurance to guard against a faulty title search as well as hazards that even the most thorough search will not reveal – such as a forged deed that does not transfer title, a claim by a previously undisclosed relative of a former owner, or a mistake in the records. For a one-time premium at closing, title insurance will clear up title problems, pay the lender’s legal expenses for defending against an attack on title, or pay claims on property the lender may lose.

Lenders’ title insurance does not compensate buyers for any legal expenses they might incur, or the value of property they might lose. A separate owners’ title insurance is available to safeguard the buyer. Whether the seller or the buyer pays for owners’ title insurance depends on local custom.

This list of settlement terms is not all-inclusive. You may also be charged fees for notarizing documents and other miscellaneous items.

Once all the forms have been signed, you can move into your new home. But before ending the settlement session, make sure that you have received or will be sent copies of all the important documents, including:

• Sales contract
• Land survey
• Warranties and instruction booklets from manufacturers for equipment in the house
• All tax payment receipts
• Certificate of occupancy (required in some areas)
• Certificates from the health department for plumbing and sewer installations (required in most areas)
• Other certificates of code compliance (required in most areas)
• All insurance polices (some might be sent later after they have been properly endorsed)
• The note and deed to your property (which will probably be mailed to you after being placed on record in your local registry of deeds office)
• Home maintenance and care instructions from your builder

Routine Home Maintenance

So you've just moved into your brand new home. You shopped around and did a lot of research to find the home that was just right for you. You signed a big pile of documents at closing, the moving trucks have left, all the boxes are unpacked, and all your belongings are in their proper places. What should you do now?

• One of the most important things to remember is that you are responsible for certain routine maintenance items to keep your house functioning properly. These tasks tend to be relatively simple. For instance, many types of heating and air conditioning systems contain filters to remove dirt and dust from the air. A home owner should change these filters when necessary.
  
  
• Cleanliness is a factor that will make your home last longer and work better. Dust and dirt, if allowed to accumulate, can harm the finishes on blinds, cabinets, countertops, floors, sinks, tubs, toilets, walls, tiles and other items. If dirt does accumulate, make sure to clean it with a substance that does not scratch or damage the finishes.
  
  
• On the outside of your home, make sure that gutters and downspouts do not get clogged with leaves or other objects. The exterior of your house is built to withstand exposure to the elements, but a periodic cleaning will improve the appearance and, in many instances, prolong the life of siding and other exterior products.
  
  
• When you bought your home, you probably received a warranty from the builder on workmanship and materials. This warranty applies to problems related to the construction of the home, but it does not apply to problems that arise because of failure to perform routine maintenance. For example, if your roof begins to leak after six months because of faulty workmanship, your warranty would cover that. If you develop a problem because water backed up in clogged gutters that you should have cleaned, the builder is not responsible for repairs. Also, some items, such as appliances, may be covered by manufacturers' warranties and are not the responsibility of the builder.
  
  
• You should fully familiarize yourself with the terms of your warranty soon after you move into your home. With all the excitement surrounding a move into a new home, most people have little desire to curl up in front of the fireplace and read a legal document. Nonetheless, you should not wait to read your warranty until a problem arises. Set aside an hour to learn what your rights and responsibilities are from the outset.

Step-By-Step Guide

Becoming a Ron Terry Construction Homeowner

1. Visit a lender to determine what you can afford to own. The lender will be reviewing your current income, debts and will look at your credit history.
   *HINT-  You may qualify for a government-backed no or low down payment loan, depending on your income
   *HINT- Glacier Bank provides free appraisals for Ron Terry Construction Homebuyers
   
   
2. Meet with Merna or Rita to choose the home site and floor plan you desire.  To
   reserve your home and start the construction process, sign a purchase agreement and provide a deposit on your home. 
   *HINT-Your deposit is usually $2,500, but we are flexible on this point depending on your situation.
   
   
3. Meet with Rita for a pre-construction meeting.  This meeting will last 1-2 hours.  During this meeting, Rita will review your floor plan carefully with you.  She will walk you through choosing interior and exterior finish selections for your home.  *HINT- We have a Frequently Requested Options sheet which gives you pricing for non-standard features.  You will likely leave this meeting knowing exactly what any changes you have selected will cost.
   
   
4. While we are building you home, meet with your lender to finalize your home loan details. *HINT- Relax and enjoy this time.  Share your exciting news with friends and relatives.  Feel free to visit your home on weekends and evenings.  Call ahead if you need to visit during the week to be sure the way is safe.
   
   
5. A few days before you close on your new home, Rita will schedule a home orientation meeting with you.  During this meeting, she will introduce you to your new home and explain important safety and maintenance features.  *HINT- Try to keep the number of people at this meeting to a minimum so you have time to ask questions and remember the important information you will be receiving.
   
   
6. The Big Day- The day you close on your new home, you will meet with Merna and your lender at a local title company.  This is where you will finalize the loan documents and the ownership of the home will be transferred to you.  Merna will review Home Warranty Guidelines with you and will provide you with a Home Maintenance and Warranty Manual.
   
   
7. Now that you are an official Ron Terry Construction Homeowner, you enter the Warranty Phase of our relationship. We will mail or email you reminders for scheduled warranty work.  We try to be pro-active in scheduling set months for routine work, but you can contact us any time for urgent items.
   
   
8. Once your warranty period is over, our relationship with you continues.  We love our home owners and you are our customer for life.  If you have any questions about your home, feel free to call us.  We will provide you with whatever service or information we can.

Checklist for Hiring a Builder or Remodeler       

Do your homework before having work done on your home.  

Use this checklist to help you select a builder or remodeler to work on or build your home.

• Does the builder or remodeler have a permanent business location and a good reputation with local banks and suppliers?
  
  
• How long have they been in the building business? It usually takes three to five years to establish a financially sound business. Will they be around after the construction is complete to service any warranties?
  
  
• Have you called your local Better Business Bureau? They can alert you to any complaints.
  
  
• Does the builder/remodeler have sufficient workers compensation and general liability insurance? If not, you may be liable for any construction-related accidents on your premises.
  
  
• Will the builder/remodeler provide you with names of previous customers? Ask them if they would hire the builder/remodeler again.
  
  
• Have you seen the builder/remodelers work, both completed and in progress? Check for quality of workmanship and materials.
  
  
• Are you able to communicate with the builder/remodeler? Remember you will be in close contact with them throughout the construction process and afterward as you live in your new home.
  
  
• Will the builder/remodeler provide you with a complete and clearly written contract? The contract will benefit both of you. Review it carefully.
  
  
• Be cautious of unusually low-priced bids. If the builder/remodeler is unable to pay for the materials and labor as the project proceeds, this may indicate a potential problem.

Home Buyer's Dictionary

ARM? GPM? PITI? You’d have to be a cryptologist to figure out some of the terms buyers encounter during the home buying process. Doing research on how to buy a house before beginning the process can greatly improve your experience and prepare you for the exciting course ahead. And with this glossary of home buying terms at your side, you can rest easy that your new home won’t get lost in translation.

Read more: Home Buyer's Dictionary