4 Tips to Finalize Your Mortgage
Experts recommend home buyers have a qualified, independent home inspector visit the property soon after a contract becomes binding. An inspector will evaluate the physical condition of the structure, construction and mechanical systems of the home, and identify defaults or any items that should be repaired or replaced.
It is a good idea to be present for the home inspection so the inspector can address any concerns or questions you may have. You will receive an impartial written assessment report of the property. If any defaults are revealed by the inspection, you and the seller are limited to time periods stipulated in the contract as to how long you have to provide the report to the seller and how long the seller has to decide if they will cure or correct any defaults. For specifics, consult your real estate agent and/or attorney. You can find an inspector through the American Society of Home Inspectors (call 1-800-743-2744). There is a fee for this service.
Other Details to Consider
Lead paintIn houses built prior to 1978, the seller must disclose any known lead-based paint and lead-based paint hazards. The seller must provide the buyer with a lead-based paint disclosure form and any records or reports in their possession. For more information, visit the HUD lead paint page .
Toxic moldContamination can lead to a variety of health and respiratory problems. Make certain your independent home inspector checks attics and crawl spaces for leaks and moisture that could support mold. For more information, visit the U.S. Environmental Protection Agency (EPA) toxic mold page.
RadonThis is a colorless, odorless gas that, when trapped in buildings, can be harmful at elevated levels. Ask your independent home inspector if radon is a problem in your area and if it will be part of the inspection. For more information, visit the EPA radon page.
AsbestosPrior to the 1970s, asbestos was used in many different insulation and fireproofing applications. You cannot tell whether a material contains asbestos simply by looking at it unless it is labeled. If in doubt, treat the material as if it contains asbestos, or have it sampled and analyzed by a qualified professional. For more information, visit the EPA asbestos page.
In some states, the county prosecutor determines whether and how to provide notice of the presence of convicted sex offenders in an area.
Some municipalities maintain lists of off-site conditions which may affect the value of residential properties in the vicinity. Examples of such conditions are proposed construction in the area, or a nearby toxic waste contamination problem, etc. Purchasers may examine the lists and can independently investigate the area surrounding the property to become familiar with any off-site condition which may affect the value of the property.
In some states, the residential property disclosure form includes an overview of physical and material issues regarding a property. However, some home buyers are also interested in less tangible issues, or potential psychological factors of living in certain properties. Stigmatized property is defined as property that is in some way tainted due to factors unrelated to its physical condition. Some examples of stigmatized property are a house that is alleged to be haunted, or the scene of a violent death. Legally, the seller and agent are not obligated to disclose these issues up front. But if asked, the seller and agent are obligated to disclose any such issues of which they have knowledge.
Most purchase agreements are conditioned upon a title search that guarantees that there are no liens and/or judgments that affect the property, including whether the seller is involved in a bankruptcy. This is done by professionals who examine records of ownership transfers and other liens and claims on properties. If someone else has a claim against the property, the seller’s title to it is not “clear.” In this case, you are not obligated to finalize the purchase. Your real estate attorney can evaluate the title and advise accordingly. With the exception of privately financed purchases, in essentially all cases your lender will require you to purchase title insurance, which protects you and the lender up to the purchase price of the property in the event that title to the property is found to be invalid. This is a one-time fee paid at closing. (If you are privately financing the purchase, you should consider purchasing title insurance to protect you from claims against prior owners.)
Prior to closing, there are several other inspections and certifications that you, the seller, and/or your agent’s office will order. Outside of the complete independent home inspection — and depending on what is necessary for your particular property — the following may also be required:
- Termite (pest) inspection
- Land survey
- Well testing
- Septic certification
- Flood search
- Radon testing
- Smoke detector certification
- Certificate of occupancy
You are expected to arrange the remaining steps of financing as soon as possible after your offer has been accepted. If you have not been pre-approved, mortgage loan processing can take from 30 to 90 days.
Many home buyers, especially first-time buyers, are sometimes shocked when they see the total bill for their loan, and may not have a firm grasp on exactly what it is they are paying. These costs are to be expected, as they are part of the home-purchasing process, but it is advantageous for prospective home buyers to familiarize themselves with the most common terms and charges. If you are in doubt about any charges assessed, do not hesitate to ask the lender.
Three of the most common mortgage loan charges include:
A monetary trust account set up by the lender to which the borrower makes monthly payments toward future costs. For example, homeowners often pay a monthly amount beyond the actual cost of their monthly principal and interest payment, which is held by the company in this type of account and then used to pay property taxes, homeowner, hazard, flood or mortgage insurance premiums, and other items as they come due. Often several months of escrow payments are required as part of a property settlement or closing and should be listed on your “Good Faith Estimate” (see below). Be sure to ask your lender about any escrow payments that you do not fully understand.
Points are charged by lenders to recover costs or to obtain a lower interest rate. One point is usually 1% of your loan amount. There may be some flexibility with these costs and they may be negotiable.
Settlement or Closing costsOne-time expenses payable at closing are often required for mortgages. These can include loan application fees, credit report fees, appraisal fees, commitment fees, lock-in fees, inspection fees, title insurance and a survey fee. These costs are called nonrecurring closing costs, and should be listed on the “Good Faith Estimate” provided by your lender. Anticipate paying nonrecurring closing costs that are about 3 to 4% of the property’s total sale price.
Good Faith Estimate
Under the federal Real Estate Settlement Procedures Act (RESPA), the lender must deliver or mail to you a “Good Faith Estimate” of all of the costs and fees associated with your loan, and who is responsible to pay them, within three days of receipt of the mortgage loan application. If any terms of your loan change before closing day, ask for an updated “Good Faith Estimate” so you will know how much money will be required of you at closing. Remember that your good faith estimate is just that: an estimate. Closing costs may vary. Be sure to compare your estimate with actual closing costs and inquire with your lender about any differences.
Here are four tips to finalize your mortgage:
1. Get a loan agreement in writing
An agreement should describe the details of the loan and include a closing date.
2. Read the loan terms carefully
Given the prices of houses, differences in mortgage terms can mean thousands of dollars of savings or extra costs over the term of your loan. Do not sign anything you have not read or do not understand completely.
3. Review your Annual Percentage Rate
You will also want to know your annual percentage rate (APR), which is the overall cost of credit including all associated costs of the loan. If your APR is .75 to 1 percentage point higher than the rate you were quoted, that is a sign that significant fees are being added to the loan. Know what they are and why you are paying them.
4. Review your Settlement Statement
The Settlement Statement (HUD-1) is prepared by the title company and itemizes all closing costs and transactions for the buyer and the seller. The totals define the buyer’s net payment due at closing and the seller’s net proceeds. Ask your real estate professional, attorney or lender to request a copy and review it with you. Note that the CFPB has proposed a replacement for the HUD-1, which is supposed to make the settlement clearer to consumers.
|Everything You Need to Know About Buying a Home|
|Step 1: Shop for a Mortgage Loan It pays to shop when looking for a loan.|
|Step 2: Find a Home Create a list of must-haves and nice-to haves.|
|Step 3: Make an Offer Get advice before you place an offer.|
|Step 4: Home Inspection, Title Search and More: Buy your home with open eyes.|
|Step 5: Insure Your Home The right insurance protects you from financial ruin.|
|Step 6: Seal the Deal Understanding your Settlement Statement (HUD-1).|