Tips For A Smooth Loan Settlement
Your settlement is the final stage of purchasing your dream home, and a lot of work goes into making it possible. While you may not understand all of the details involved in the settlement process, there are several important points you should be familiar with to achieve the best possible terms.
The first and most important item is securing a loan. You want to find a lender and loan that meets both your current and long-term financial situation. Here are some tips to aid you in your search:
- Shop around for a lender. Research mortgage brokers, government programs such as FHA and VA loans, computer loan origination systems and other lending outlets. Note any fees associated with services that company provides.
- Evaluate the differences between loans such as conventional and adjustable rate mortgage loans.
- Ask potential lenders about interest rates, points and other fees they require. Points are tax deductible if paid separately and are not deducted from the loan amount. Lenders generally require that points and certain fees be paid at settlement.
- Ask what potential lenders require and charge for settlement services. These services typically include a survey of the house and property, mortgage or title insurance, loan processing, underwriting and document preparation. Ask for a good faith estimate of all settlement costs from each lender. Once you choose a lender, compare that lenders estimate with the terms of your contract.
As you research your loan, other elements of the home buying process need to be completed. Make sure you:
- Obtain an appraisal. An appraisal is an estimate of the homes fair market value. It is based on an inspection of the house and neighborhood, the price of comparable houses and other economic factors. Lenders require an appraisal to determine if the value of your home is enough to secure a loan and how much they can recover if you default. The appraisal does not guarantee that the property is free of defect.
- Conduct a title search. A title search involves looking through public records to see if anyone else has a claim to your property. In the event of a foreclosure, a lender does not want to learn that somebody else has a prior claim to the property.
- Determine if you are required to purchase lenders title insurance to protect your lender from claims. This insurance guards against a faulty title search, as well as hazards that even the most thorough search will not reveal. The title insurance will clear up title problems, pay the lenders legal expenses for defending against a claim or pay claims on lost property.
- Purchase your own title insurance. The lender's and previous owner's title insurance will not protect you against a claim.
- Arrange for a home inspection. A home inspection will let you know the condition of your cooling and heating systems, pipes, structure, grade of the land and electrical system. It is strongly suggested that the buyer hire the home inspector. If the report is unsatisfactory, it can provide you with leverage to renegotiate the sales contract.
The information above provides some of the content for the agreement of sale, the framework for all home sales. It is a good idea to have an attorney review the contract prior to settlement and include within it a cancellation policy.
The agreement of sale will also contain the negotiated terms between you and the seller on payment for required inspections and searches, outstanding utility bills, property taxes, homeowners' association dues and other fees or taxes. The terms can be renegotiated during settlement.
This is a brief and general look at the settlement process. State and local real estate laws in your buying area will govern your settlement procedures. Always check with your local jurisdiction for specifics.
Visit the National Association of Home Builders (NAHB) web site, www.NAHB.org, for more information on buying a home. The Department of Housing and Urban Development (HUD) Real Estate Settlement Procedures Act (RESPA) helps consumers become better informed home buyers. You can learn more about RESPA by going to the HUD website, www.hud.gov.
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