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Closing and Title
Costs
It's the big day.
The day you go to the title or escrow company, sign your name on the dotted
line, hand over a check and prepare to take ownership of your new home.
It's also the day that you and the seller will pay "closing" or settlement
costs, an accumulation of separate charges paid to different entities for
the professional services associated with the buying and selling of real
property.
It's too often a day filled with uncertainty and stress.
To help you better understand this confusing subject, the Land Title
Association has answered some of the questions most commonly asked about
title, closing and closing costs.
What services will I be paying for when I pay closing costs?
You will usually be paying for such things as real estate commissions,
appraisal fees, loan fees, escrow charges, advance payments such as property
taxes and homeowner's insurance, title insurance premiums, pest inspections
and the like.
How much should I expect to pay in closing costs?
The amount you pay for closing costs will vary; however, when buying your
home and obtaining a new loan, an estimate of your closing costs will be
provided to you pursuant to the Real Estate Settlement Procedures Act after
you submit your loan application. This disclosure provides you with a good
faith estimate of what your closing costs will be in the real estate
process. An itemized list of charges will be prepared when you close your
transaction and take title to your new property.
Can I pay for my closing costs in installments?
No, and it is easy to understand why. Many different parties will have
fulfilled their responsibilities and be awaiting payment upon closing. The
title or escrow company will disburse money to those parties, pursuant to
the escrow instructions, when funds are available.
Will I be allowed to write a personal check to cover my closing cost?
Your closing funds should be in the form of a cashier's check, issued by an
institution from the state of your purchase, made payable to the title
company or escrow office in the amount requested. A personal check may delay
the closing or may be unacceptable to the title or escrow company. An
out-of-state check could also cause a delay in your closing due to possible
delays in clearing the check.
How much can I expect to pay for Title Insurance?
This point is often misunderstood. Although the title company or escrow
office usually serves as a meeting ground for closing the sale, only a small
percentage of total closing fees are actually for title insurance
protection.
Your title insurance premium may actually amount to less than one percent of
the purchase price of your home, and less than ten percent of your total
closing costs. The title policy is good for as long as you and your heirs
own the property with the payment of only one premium.
Why are separate owner's and lender's title insurance policies issued?
Both you and your lender will want the security offered by title insurance.
Your home is an important purchase, and you will want to be certain your
home is yours, all yours. Title insurance companies insure your rights and
interests in order to protect you against claims.
Your lender is looking to insure the enforceability of their lien on your
property and marketability. What is meant by "marketability"? Local lenders
will "originate" a loan here, and, often, sell it to an out-of-state
investor. This investor, who may never see the property, needs to know that
he has a valid and enforceable lien. Title insurance is the way of making
certain. Without a current title policy, the loan is essentially
unmarketable.
What does my Title dollar pay for?
Title insurers, unlike property or casualty insurance companies, operate
under the theory of "risk elimination."
Risk elimination can only be accomplished after an intensive period of risk
identification.
Title companies spend a high percentage of their operating revenue each year
collecting, storing, maintaining and analyzing official records for
information that affects title to real property. The issuance of a title
insurance policy is highly labor-intensive. It is based upon the maintenance
of a title "plant" or library of title records, in many cases dating back
over a hundred years. Each day, recorded documents affecting real property
are posted to these plants so that when a title search on a particular
parcel is requested, the information is already organized for rapid and
accurate retrieval.
Trained title experts are able, with the aid of their extensive title
plants, to identify the rights others may have in your property, such as
recorded liens, legal actions, disputed interests, rights of way or other
encumbrances on your title. Before closing your transaction, you can seek to
"clear" those encumbrances which you do not wish to assume.
The goal of title companies is to conduct such a thorough search and
evaluation of public records that no claims will ever arise. Of course, this
is impossible--we live in an imperfect world, where human error and changing
legal interpretations make 100 percent risk elimination impossible. When
claims do arise, title insurance companies have professional claims
personnel to make sure that your property rights are protected pursuant to
the terms of your policy.
To conclude, when you pay for your title insurance policy, you are paying
for a team of professionals who have worked together to deliver you a title
insurance policy which represents protection for your ownership of real
property.
Who can I look for straight answers on Title, Closing, and closing costs?
Title or escrow company personnel are available to review and explain your
title policy and your closing statement.
Article by CLTA
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