The Complete Idiot's Guide to Buying and Selling a Home

Handling the Closing: Buyer's Perspective

In This Chapter

• Understanding what you must do before the closing
• Preparing for the closing costs
• Going to the closing
• Handling problems
• Closing and moving in

Finally! The big day has arrived. The last step in buying a home is the closing. At the clos-ing, you'll sign document after document after document, turn over all your money, then get the much-anticipated keys to your new home. This chapter tells you what to expect at closing.

What Has to Happen Before the Closing

Getting to the closing is a kind of race. You have to pass over several hurdles before you cross the finish line. Here are the hurdles you can expect to jump.

First, you must obtain financing. This topic is the subject of Part 3, "Understanding Your Finance Options." Unless you are paying cash for the home, you have to have the backing from your lender. Backing comes in the form of a commitment letter from the lender. Once you receive this commitment letter, you have the money to buy the home. You've jumped hurdle one.

Second, the lender will require that you have a homeowners insurance policy on the home. Before the closing, you'll need to arrange for insurance. Usually you must show a one-year paid policy. Insurance is covered in Chapter 19, "Choosing Insurance."

Third, there may be other requirements that you or the seller must meet before the closing. For instance, if you are getting an FHA loan, the lender may require certain repairs to be made before the loan is closed. Or if your home lies in a flood plain, you may be required to get flood insurance. Any other requirements of the lender will be spelled out in the commitment letter.

The final two things that must be done—deciding how to hold the title and having the final walkthrough—are de-scribed here.

Who Owns the Home?

As part of the closing, you'll be asked how you want to "hold the title." An appropriate response is not "In my hands." Holding the title refers to the ownership. Do you own the home alone? Do you own it with a partner? How is the property shared? You spell out the ownership by selecting how to hold the title. Here are the most com-mon ways:

• Sole ownership. You are the only owner. If you are buying the home alone, you'll probably select this.
• Tenancy by the entirety. Available for married couples only. With this type of own-ership,both owners have to agree before the home can be sold or refinanced. If one spouse dies, the other automatically gets the home without going through probate (the legal process of settling a will).
• Joint tenancy. Used when two or more people purchase a home. The owners agree that during their lifetimes, any of the owners can sell their interest to whomever they want without any type of approval from the others. When one owner dies, the surviving owner automatically gets the deceased's share.
• Tenancy in common. The property is owned jointly. If one owner dies, his or her share goes to his or her heirs.

The Final Walkthrough

As part of the contract, you may stipulate that you want a final walkthrough. Final walk-throughs are a good idea to ensure that the property is in the same condition it was in when you made the offer on the home. You may want to make sure that all the systems are in working order and that no damage has been done to the home.

Real Deal

Don't wait until the last minute to get insurance.Once the clos- ing is approaching,you may be so excited that you'll sign up with the first insurance company available.It makes more sense to shop around and get several quotes so that you get the best deal.

As part of the purchase agreement, the seller agrees to turn the property over in the same condition as it was during the inspection process. If the home has been inspected and you have removed the inspection contingency, then you have agreed you are satisfied with the property. A final walkthrough is just to be sure that there have been no major changes since that time. If there have been, the transaction can be opened up for renegotiation.

If you want a final walkthrough, be sure to say so in the contract. You should schedule the walkthrough before the closing. Give yourself enough time to settle any problems that pop up. For instance, if you schedule the walkthrough the morning of the closing and find problems, you won't have any time to resolve them.

During the final walkthrough, check the major systems (electrical, plumbing, and so on), and check the appearance of the home.

Next check the personal property in the home. Is property that is supposed to be there re-ally there? For example, if you asked the sellers to leave the washer and dryer as part of the deal, are the washer and dryer still there? Are the curtains and floor coverings still there? Is property that is supposed to be gone truly gone? For example, if the sellers had an old re-frigerator in the basement that you wanted them to take with them, did they take it? Or did they leave it for you to haul out? Any disputes about personal property should be taken care of be-fore you close.

Finally, make sure the sellers are out of the home (or ready to be out). When you take possession of a home depends on local customs. In many places, the seller must be out before closing. In some places, the seller must move out a week after closing. Also, in some special cases, the seller may have arranged to remain in the home and pay you rent after closing. If the home is in the shape you expect and the sellers and all their worldly goods are moved out, you are ready to close.

What You Pay at Closing

Closing on a home can be exciting, because at the end of the proceedings, you'll have the keys to your new home. You'll also have an empty pocketbook or wallet, because at the closing, you'll be expected to have the money for your down payment and all the closing costs.

Buyer Beware If the seller is supposed to be out before closing and is not out when you go through the final walkthrough,you may have a problem. Packing up and moving an entire homeful of possessions isn't an afternoon's task. If you are going through the home and the sellers show no signs of budging,you are looking at trouble. You should insist the sellers are out before you close. Don't Forget the Down Payment

At the closing, you'll need to pay the balance of the down payment on the home. The down payment amount will vary, depending on the purchase price and the amount you are putting down. If you are buying a $100,000 home and putting 10 percent down, you must have $10,000 for the down payment. Keep in mind that your earnest money will be applied toward the down payment in most cases. So if you gave the sellers $1,000 in earnest money, you'll need to come up with the remaining $9,000 for the down payment.

Keep in mind that you cannot pay with a personal check. Plan to get a cashier's check from your bank.

Closing Costs

In addition to the down payment, you'll have to pay closing costs. When you apply for the loan, the lender is required by law to give you a Truth-in-Lending estimate of your closing costs. The lender will base this estimate on local practice as well as your sales agreement with the seller.

Closing costs that are not paid at the time of closing are listed as POC, or paid outside of closing. Application fees, the cost of obtaining a credit report, and homeowners insurance are this type of fee.

The following sections list the fees you can expect to pay at closing. Keep in mind that some closing costs may be paid by the seller, and some will be paid before closing. For ex-ample, you probably paid a loan application fee, which is considered a closing cost. This fee, however, is paid at the time of application.

Also, FHA loans and VA loans have different restrictions on what the buyers and sellers are allowed to pay.

Payable in Connection with the Loan

The following are items payable in connection with the loan:

• Points. Depending on the loan package you se-lected, you may have to pay points. One point is equal to 1 percent of the loan amount. Points are usually tax deductible in the year paid. In some cases, the seller may agree to pay points.
• Loan origination fee. A loan origination fee is similar to a point; it is usually 1 percent of the loan amount. Loan origination fees are not tax de-ductible. In some agreements, the seller may pay this fee.
• Assumption fee. If you are assuming a mortgage, you may have to pay an assumption fee.

Bet You Didn't Know

Ask your accountant to confirm the number of points you can deduct on your tax return (it varies depending on where you live).This is important because sometimes it is more convenient to have the lender "pay the loan origination fee for you "and in- stead,charge you a point.This way,you can deduct the point instead of pay an origination fee that you cannot deduct...