You’ve probably read the newspaper stories or saw the television news reports―the ones about distressed homeowners not understanding the terms of their mortgage. People surprised to learn that their interest rate is increasing. Or maybe you know someone who can’t use their property the way they thought they could or incurred a penalty because they didn’t pay their real estate taxes on time after their closing.
To avoid unpleasant and potentially costly problems after your closing you need to be involved in and pay attention to the details of your home purchase. Take time prior to and at the closing and make certain that the important paper work reflects your understanding of the transaction. Here are six important matters that you should pay special attention to at your closing.
1. Several days before the closing, ask to review the title insurance commitment, usually ordered from the title company by a representative of the seller. The commitment shows who owns the property now, lists the required documents to transfer ownership to you, and in Schedule B-Section II, shows all of the recorded property rights the title company found that will take precedence over your ownership. These usually include utility easements, restrictions and other routine matters. These are property rights that might affect your plans for the property. For example, there might an easement area on the property right where you’re thinking you want to build a pool or outbuilding. Some title companies only make non-specific exceptions for these matters. Ask that the title company only make specific exceptions to publicly recorded property rights so that you’ll be protected against someone exercising a property right that was not disclosed to you. Reviewing the title commitment helps you understand the legal nature what you’re buying.
2. Make time in your schedule to be at the closing. It’s an important event. Allow yourself the opportunity to clearly understand all of the details and financial commitments that take place. It is difficult to know what is going on, particularly last minute changes, when someone is trying to explain it to you over the phone, rather than in person. Bring any estimates that your lender provided you to the closing so that you can refer to them. Consider making arrangements to come to the closing an hour early so that you can thoroughly review all the documents.
3. Make sure that you understand all of the charges and credits on the closing statement, especially the real estate taxes. The taxes will be handled in a variety of ways depending upon the time of year and the terms of your Purchase Agreement. The seller’s obligation for taxes usually ceases at closing, so ask the closing agent explain to you how payments and credits are being handled.
4. Make certain that the interest rate and term in the Promissory Note to the lender are what you expected. Check the adjustment dates and index if your loan is adjustable. You’ll be provided a payment letter which details not only the principal and interest you’ll owe each month, but also any additional amounts the lender requires for tax and insurance escrows. It will also show your first payment date.
5. Review the seller’s deed to you. Make sure your name(s) are spelled correctly and that the deed vests title in the manner you want – tenants by the entireties (husband and wife), tenants in common or joint tenancy with rights of survivorship.
6. A couple of weeks after your closing, file with the County Auditor for any real estate tax exemptions and credits that you’re eligible for. The closing agent will give you a state form printed on yellow paper detailing all the possible credits. Failure to file can result in significantly higher property taxes.
If you pay attention to the details about your purchase and take responsibility for understanding them, you’ll be much more likely to avoid unpleasant surprises after the closing – surprises that can be difficult or impossible to change.
~ John Bethell