ICR’s Home Buyer’s Primer

Since a home, in most instances, is a household’s single largest financial asset, it is prudent for home buyers to be well informed about every aspect of the home that they are going to purchase. What buyers sometimes overlook, however, is the importance of being just as well informed about the process involved in buying that home. That is why Independent Custom Realty LLP created its Buyer’s Primer. The Primer provides first -ime homebuyers and seasoned buyers alike with essential information and tips to facilitate the purchase of a home. The Primer provides first-time buyers with practical, detailed information about the home buying process from the initial stage of contemplating the brilliant decision to buy, to the post-settlement period of wondering who to call when the toilet won’t stop running. Seasoned buyers, meanwhile, can utilize the Primer to brush up on the long forgotten nuances of buying a home and discover what has changed since their last purchase. ICR’s Buyer’s Primer has the ability to put buyers in the know.

I. Knowing When to Buy

For some people, purchasing a home is a necessity.  Whether it is the result of having to relocate for a new job or having to make a move because of an addition to the family, a new home purchase can, sometimes, simply not wait.  Conversely, some buyers have the luxury of timing their new home purchase to coincide with favorable market conditions.  As the correction in the national housing market continues, one thing is clear; both those who must buy out of necessity and those buyers looking to capitalize on changing market conditions are in the midst of a favorable environment to purchase a home in Center City Philadelphia.

II. Understanding Why It’s a Favorable Time to Buy in Center City Philadelphia

As the summer of comes to a close, pundits armed with excessive economic data point to an improving national real estate market, despite an upward trend in mortgage rates. But painting all housing markets,or all segments of individual markets for that matter, with the same broad brush is irresponsible and misleading.  The reality is that real estate markets are local in nature and largely reflect the factors occurring in those individual markets.  In the case of the Center City Philadelphia market, the fundamentals dictate that it is an appealing time to buy.  Why?  A few indisputable facts support this conclusion.

1. Historically low mortgage rates.

With rates for a 30 year fixed mortgage hovering around 4.5%, money, albeit slightly more expensive than a few months ago, is still at historically inexpensive levels.  And with the federal government continuing to support the housing markets with favorable monetary policies, rates should remain low in the near future. With that said, nobody should delay purchasing real estate in anticipation of rates falling back towards early 2013 levels or remaining this low indefinitely.  Despite the government’s best efforts, mortgage rates remain fickle and have a tendency to confound even the most experienced real estate and banking experts.  You can use ICR’s mortgage calculator to determine what your monthly payment might be based on different loan amounts. Use a mortgage calculator.

2. Prices Are Increasing.

In the last 12 months, the price of homes purchased in Philadelphia has appreciated 4.5%.  With the economy continuing to strenghten and Philadelphia’s reputation as a vibrant city continuing to grow, it is likely that homes in Philadelphia, particularly in Center City, will continue to appreciate in value.

3. Independent Custom Realty Buyer’s Incentive Program

ICR’s Buyer’s Incentive Program provides its savvy buying clients with a monetary benefit that can be used to reduce their closing costs.  Its ICR’s way of both practicing professional representation and rewarding its discerning clients for collaborating with ICR to purchase their homes. Read more.

III. Choosing the Right Agent

All real estate professionals are not created equal.  Experience, knowledge, dedication and personality are qualities that separate the highest caliber agents from the also-rans.  The presence, or absence, of any of those qualities is a determining factor in whether an agent can fulfill a client’s goal of finding the most desirable home with the least amount of difficulty.  With the ascent of the Philadelphia real estate market in recent years a plethora of new agents has joined the profession in hopes of participating in the unprecedented boom that the market has enjoyed.  This swelling of the ranks and the countless referrals one gets from friends and family members who can recommend “the best agent in the city,” make it a daunting task to identify the right real estate professional.  That is why it is critical for prospective buyers to do their homework to find the right professional with which to collaborate.  Meet ICR’s Realtors

Realty Specialists advise prospective clients to interview multiple agents and ask them the right questions in order to make informed, educated decisions about with whom they should collaborate with to purchase a home.

1. Interview

While you, or someone close to you, may have an existing relationship with a licensed real estate agent, it is best to consider other candidates as well. Convenience should never be the deciding factor in choosing a real estate professional.

2. Ask questions

Ask pertinent questions to ascertain whether an agent measures up in terms of the aforementioned qualities.  Important questions include:

  • How long have you been working in real estate?  How long have you concentrated your practice in the area in which I have an interest?
  • What resources does your brokerage have that differentiates it from other brokerages in Philadelphia?
  • What is your protocol for keeping me informed about a particular property and my house search in general?
  • Who else at your firm will be assisting us in our search for my home?
  • Will you show me properties listed by other brokerages?
  • How will you handle a dual agency situation, if it arises, in the event I would like to make an offer to purchase one of your listings?
  • May I review documents prior to being asked to sign them?
  • How is a buyer’s agent such as yourself compensated?
  • How large a role will I be able to play in the search process?
  • How will you assist me in finding and identifying professionals in fields such as mortgage, insurance, and inspection who can assist me in the buying process?
  • Do you have any past clients that I may contact to secure a reference?

Once you have chosen the right professional and established a formal relationship with that person to assist you in the quest to find the right house, you should expect that real estate professional to perform certain duties to ensure the process goes as smoothly as possible.  For example, a buyer should expect a superior agent to:

  • Work with clients to pre-qualify them for financing and, in doing so, determine the amount of house that they can reasonably afford.  This determination is critical to narrowing the focus of your search for a home.  ICR Realty Specialists have contacts in various sectors of the mortgage industry to provide clients with multiple options for finding the best possible financing.
  • Assist clients in identifying their needs in terms of location, house style, and house amenities.  ICR Realty Specialists are experts in the Center City Philadelphia market.  They live in the market’s neighborhoods and they know them well.  They are the neighborhood specialists.
  • Continually search for new listings that meet the criteria established early in the process.  ICR Realty Specialists constantly monitor the MLS (link) and speak with their contacts to remain informed about changes in the market that may benefit their clients.
  • Work with clients to link them with established, reliable and independent professionals to provide superior inspection, title, insurance, legal and moving services.  ICR Realty Specialists have considerable resources at their disposal to provide clients with numerous options to ensure they locate the best possible services.
  • Draft an appropriate offer and deftly represent their clients in presenting and negotiating the offer.  ICR Realty Specialists are skilled negotiators who are dedicated to ensuring that their clients purchase their homes on the best possible terms. ICR was founded upon a desire to provide superior representation to its clients and, towards that end, its Realty Specialists always keep their clients’ interests paramount.
  • Achieve a successful closing by handling the administrative tasks leading up to closing, representing the client at settlement itself and dealing with any unexpected issues that may arise.  ICR Realty Specialists have the wisdom and experience to achieve smooth, successful closings of their clients’ purchases.

IV. Getting Started Collaborating With ICR

Upon deciding to purchase a home in collaboration with an ICR Realty Specialist, you will be required to attend to a few administrative matters before a plan to locate your ideal home can be formulated.

  1. Initially, your ICR Realty Specialists will present you with a Consumer Notice that you will be asked to read and sign. The Consumer Notice explains what you may expect from your ICR Realty Specialists and enlightens you about the different capacities in which an ICR professional can represent you, the buyer, in your quest to find the right home.
  2. Next, clients are asked to read and sign an agency agreement.  With the agreement an ICR Realty Specialist commits to act on your behalf as an agent within the context of a fiduciary relationship. The document also explains our willingness to act as agents for our clients’ at their discretion.  In other words, ICR does not set contractual time limits on its relationships with clients.  Rather, it believes they should be free to terminate the relationship at any time should they feel ICR is underperforming in its obligation to provide them with superior, professional representation.  This document, in effect, formalizes the business relationship between ICR and its clients and transforms them from being customers to being clients. )

V. Preparing to Search

A. Getting Pre-Qualified

Upon officially establishing agency relationships with ICR, clients are assisted in identifying lenders who can pre-qualify them for mortgage loan. Lenders will analyze numerous factors, including credit and employment history to determine how much money a client can realistically borrow.  The client is then presented with a letter stating the loan amount that will be available to him/her for the purchase of a property.  This pre-qualification letter is critically important.  When presented with an offer, it lets the sellers know that a buyer has the financial ability to purchase the house and allows them to seriously entertain the offer.  The determining factors in establishing how much house one can logically afford include the amount of down payment a buyer is capable of investing and the lender’s determination of how much the buyer can comfortably afford to pay on a monthly basis towards housing costs.  A monthly mortgage payment usually consists of what is known as PITI, or principal and interest on the mortgage loan and the property taxes and insurance. A general rule of thumb holds that a borrower’s monthly PITI payment should not exceed 28% of monthly gross income and this amount, plus all recurring debts, should not exceed 38% of monthly gross income.

  • Principal: This portion of the payment goes towards paying down the “principal” part of the loan.  With most loans, the amount of the payment applied to principal increases as the age of the loan increases.
  • Interest: This is the cost of borrowing money or the price that a borrower pays for the use of the lender’s money.   The amount of money in a loan payment applied to interest decreases over the length of the loan.
  • Taxes: Property taxes in Philadelphia are based on a formula derived from multiplying the assessed value of the home by a quotient.  There has been great debate about the fairness of this system (link to Inquirer article),but change has yet to take place.  Most lenders collect 1/12 of the property tax due on a monthly basis and pay the City on your behalf.  This is referred to as tax escrow.
  • Insurance: Lenders require borrowers to obtain homeowners or hazard insurance to protect the borrower (and the lender) should a loss occur as the result of fire, storm damage or other catastrophe.  Buyers may be responsible for other monthly costs related to housing such as condominium fees, homeowner association dues and, in some instances, mortgage insurancepayments.

B. Determining preferences in terms of location, style of house, amenities

After clients are pre-qualified for a mortgage loan, ICR collaborates with them to develop logical and efficient plans to guide the searches for their ideal homes.  In searching among the available houses in the Center City market, a potential purchaser should be guided by four principal considerations:  price, location, style of house and amenities.  The parameters of a lender’s pre-approval immediately narrow the pool of suitable homes available to potential buyers.  But price alone does not dictate which home a purchaser will buy.  Buyers must further narrow the focus of their searches by identifying preferences for such varied considerations as the home’s proximity to work, the number of bathrooms it may have, and the age and efficiency of the heating unit.  ICR Realty Specialists collaborate with their clients to carry out effective, efficient searches through the use of ICR’s Buyer’s Preference Survey.  It is a tool that encourages clients to ponder as many considerations as possible in their efforts to identify their perfect homes.  The Survey is comprehensive enough to leave no stone unturned in the home buying search while ensuring that the fees that ICR expects from sellers are modest enough to permit its clients to enjoy a meaningfulbuyer’s incentive award.

Complete this survey to pinpoint the qualities and features that you desire in a home.  When completed, you may email it to your ICR Realty Collaborator to facilitate identification of homes that you may want to view.

VI. The Search

Once you and your ICR Realty Specialist have collaborated to establish the criteria for your new home search, the actual search can begin.  At this point you will probably already have a few prospects in mind, some of which you may have already viewed by attending open houses.  These prospects often serve as the jumping off point on the journey to find your new home.  Your ICR Realty Specialists will use the professional tools at his or her disposal to provide you with more information about those properties and also begin identifying other properties that fit your criteria. Since this is a collaborative exercise you will be encouraged to contribute to the search by using ICR’s powerful website to search for listings that measure up to your standards. Search. Then what?

  • Research: Once more detailed research is compiled on the initial prospects, you and your ICR Realty Specialist will analyze the research to determine which prospects meet the grade.   Following this weeding-out exercise appointments will be set to see these prospects first hand.
  • Showings: Your ICR professional will arrange appointments and accompany you to visit houses listed for sale by ICR, or those listed by other firms, at the most convenient times for you.  Should your schedule preclude a visit, ICR can conduct a real time virtual showing that will allow you to develop an initial feeling for a property from the comfort of your home or office.  Should a property viewed during a virtual showing spark your interest, an actual showing can be arranged.
  • Feedback: Upon viewing a house, your ICR Professional will ask you complete a brief survey to generate feedback about your experience.  This survey will then be uploaded to your client file on ICR’s website along with photos of the viewed house to allow re-examination of the house at a later date.  This exercise also has the ability to further hone your ICR Realty Specialist’s understanding of what constitutes your ideal home.
  • Working contacts: During the search phase, your Realty Specialist will make contact with colleagues and potential sellers to discover if the home that you are looking for is out there, but has just not hit the market yet.
  • Daily Analysis of New Listings: Your ICR Realty Specialist will go to great lengths to show you all of the available listings in Center City that fit your criteria.  Since Center City has such a large housing stock, new prospects are listed for sale daily and your specialists will pour over those listings to ensure you know about them soon after they appear on the MLS.  It goes without saying that achieving the desired results in real estate is often about timing.
  • Review: Once you find a house that you think is worthy of an offer, your ICR Specialist will collaborate with you to review previously seen properties as a means of comparing and contrasting them with the property that you have identified for purchase.

VII. Offer and acceptance

Preparation for the Offer

After identifying a home for purchase, your ICR Realty Specialist will work with you to prepare an appropriate offer.   Your specialists will guide you in exploring terms and contingencies to include in the offer, draft the Agreement of Sale (AOS), present it to the sellers and their agents and negotiate its terms.  Prior to drafting the AOS, there are numerous issues to be considered that may impact various facets of your offer.   Familiarizing yourself with these considerations now will enable you to maximize the benefits of collaborating with your ICR Realty Specialist when the time comes.

Property Disclosure: Upon identifying a prospect for purchase, your ICR Realty Specialist will secure a property disclosure document from the seller’s agent.  This disclosure pinpoints the seller’s knowledge of the age and condition of individual systems in the house.  This knowledge is of importance as it can inform you early in the process about any former or present problems with the house.

Comparative Market Analysis (CMA): Your ICR Realty Specialist will present you with a market analysis detailing the sales prices of similar houses in the area and will collaborate with you to analyze that information and determine the appropriate price to include in your offer.

Estimate of Closing Costs: Upon working with you to determine the offer price, your ICR Realty Specialist will calculate the costs that you can expect to incur at settlement based upon your offer price.   These costs will include the remainder of your down payment, the cost of title insurance, pre-paid property taxes and insurance, and transfer taxes.  Knowing these costs in advance is beneficial to assisting you in making the necessary fiscal arrangements to facilitate settlement.

Drafting the Agreement of Sale (AOS)

In addition to the offering price, other considerations in the Agreement of Sale will serve as the basis of your offer, including the amount of earnest money to put down, the date of settlement, and financing and inspection contingencies.  Reviewing the property disclosure statement, analyzing the CMA and reviewing the estimate of closing costs does much to assist in drafting these aspects of the AOS.  Additionally, your ICR Realty Specialist knows how decisions related to these considerations impact the strength or weakness of an offer.  But you have the best knowledge of your financial situation.  Therefore, together you will apply your respective reservoirs of knowledge to draft an Agreement of Sale that best represents your interests.

Details of Agreement of Sale Provisions:

  • Deposit: The first page of the Agreement of Sale asks the prospective buyer to state the amount of earnest money that will accompany the Agreement of Sale.  Typically, a deposit of 5% of the purchase price is made with the submission of the Agreement of Sale to alert the seller of the seriousness of the offer.
  • Settlement Date: Also found on the first page of the agreement of sale, is the date the buyer wishes to close or settle the contract to purchase the property.  A 30-45 day settlement from the date of the agreement is typical as it allows sufficient time for all inspections and title work to be completed.
  • Financing Contingency: The purpose of the financing contingency is to protect you in the event you are unable to obtain a mortgage.  If your loan application is rejected, the sale becomes null and void and your earnest money will be returned.
  • Home Inspection Contingency: Even if you have experience in the building trades or in the purchase of property it is imperative to have a building inspection conducted by a licensed home inspector.  It is just as important to make the contract contingent upon the result of this inspection.  As the buyer, you are responsible for choosing a home inspector to perform the inspection.  Your ICR Realty Specialist will provide you with a list of credible home inspectors from which to choose (also see http://www.ashi.org).  While you, as the buyer, are typically responsible for the cost of the inspection, it is a worthwhile investment. More Information.
  • Termite Inspection Contingency: In addition to the customary home inspection, it is also prudent to make the Agreement of Sale contingent upon a termite inspection.  In Pennsylvania it is the buyer’s responsibility to assume the cost of the inspection.  In the event termite damage is discovered, you will then have the opportunity to have the seller repair the termite damage and treat the property for termites or receive a credit towards those costs. More Information.
  • Radon Inspection: This hazardous yet odorless gas results from the decay of natural materials in the ground and has been concluded to be a cause of cancer (http://www.epa.gov/radon/pubs/citguide.html).  While not all areas are known for the presence of radon, it is worth the peace of mind to have the inspection conducted and have the contract contingent upon the results.  Should radon be found, you may have the option of having the seller install a radon remediation system at his own cost. More Information.
  • Personal Property Provision: You should specify in the Agreement of Sale any items not physically attached to the house that you expect to be included in the sale.  Such items may include window treatments, lighting fixtures and appliances.
  • Title Provision: The term “title,” as it relates to real estate, is a bit different than how the term is commonly used in relation to auto ownership.  In real estate, it can best be described as legal ownership and it is manifested in the receipt of a deed from the seller at settlement.  The buyer has the right to select the title company that will perform the title search and that will, subsequently, provide title insurance.  Mortgage lenders require that these activities be conducted so that their interests are protected.  When a title search is conducted, the history of a property is researched to discover if there are any rights of ownership to the property conflicting with the rights of the current owner.  If the title search reveals that the current owner cannot provide clear and marketable title to the subject property, you may terminate the agreement and have all deposit monies returned.  Should the title search reveal that there are no “clouds on the title” or it is free of claims or liens, you may move forward with the purchase and do so with the comfort of knowing that your title insurance will protect you should a lien be discovered after settlement.  Should that happen, the title company will assume the burden of resolving any such liens or claims.
  • Negotiation: Once your ICR Realty Specialist submits the offer that was drafted, the sellers will review the offer to determine if the conditions of the agreement are satisfactory.  It is possible for the sellers to make a counteroffer should they object to one or more of the agreement’s conditions.  In the event of a counteroffer, your ICR Realty Specialist will rely on his or her considerable experience to guide you through negotiations.  Ultimately, the acceptance of your offer on terms satisfactory to you is the only result palatable to ICR.

VIII. Pre-Settlement

Once your offer has been accepted, attention turns to collaborating with your ICR Realty Specialist to ensure that all of the necessary work is performed that will lead to a smooth settlement.   This work will involve calling in outside experts to examine the house to ascertain whether its condition meets your expectations.  It will also involve working with your mortgage specialist to ensure that your loan is financed.

Arranging the Home Inspection

Since your ICR Realty Specialist will have convinced you of the importance of having home and environmental inspections performed, it will be your responsibility to make those arrangements prior to settlement.  Your ICR professional will provide you with a list of reputable inspectors from which you can choose those with whom you are most comfortable.  Any reputable home inspector should be a member of the American Society of Home Inspectors (http://www.ashi.org).   At the time of inspection, the inspector will examine the structural condition of the home and assess the mechanical systems of the house and then prepare a report detailing his findings.

There are two possible outcomes of the home inspector’s report.  Either his findings will indicate some defects in need of correction or the report will certify that the house is in sound condition and not in need of repair.  In the event that defects are found, you will have the opportunity to ask the sellers to rectify the problems or ask them to provide a credit at settlement towards the repairs.   You will also have the opportunity to exit the contract should you find the issues identified too numerous or too problematic.  In the event that no defects are found, you will have the peace of mind knowing that you will be making a worthy investment.

Arranging Environmental Inspections

In addition to a home inspection, it will also behoove you as a prospective purchaser to have termite and radon inspections conducted.

  • Radon: The radon inspection is often conducted by the home inspector for an additional fee.  The inspector will leave a test kit in the lowest livable room of the home for a period of 48 hours and then have the kit tested to determine the amount of radon present.  While all houses have radon present, it is the level that is important.  As the second leading cause of lung cancer in the United States, radon levels exceeding 4.0 picocuries per liter are considered harmful and must be mitigated. Click here for more information. Should radon be detected, a radon reduction system can be installed at a cost of between $500 and $2500, depending upon the house.  Should radon levels above the harmful threshold be detected, your ICR Realty Specialist will collaborate with you to negotiate a satisfactory resolution.
  • Termite: While termites themselves are physically small, the problems they create can be rather large.  Your ICR Realty Specialist will provide you with a list of certified termite specialists from which you can choose.  The inspector will conduct a visual inspection of the readily accessible areas of a home for evidence of wood-destroying insects.  Should the termite inspection report indicate the presence of termites, your ICR Realty Specialist will collaborate with you to determine whether negotiating the remediation and the correction of existing damage or exiting the deal is the best course or action.

Estimate of closing costs

The Real Estate Settlement Procedures Act (RESPA) requires that your lender provide you with an estimate of closing costs prior to settlement.  The lender typically provides this to you in the form of a good faith estimate at the time you apply for your loan.  However, it is critical to obtain and review a final closing statement or HUD-1 Statement a day or two prior to settlement.   Your ICR Realty Specialist will review it with you and explain any aspects of it that are unclear.  Closing costs typically amount to between 3 and 7 percent of the purchase price and include:

  • Placement or origination fee: The origination or placement fee charged in a mortgage loan is often 1% of the loan amount. This origination fee is paid to the company originating your loan to cover their costs associated with creating, processing, and closing your mortgage.
  • Hazard insurance premium: Hazard insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders often insist on the borrower bringing to settlement a paid-up first year’s policy or to pay for the first year’s premium at settlement.
  • Flood Insurance: If the property is in a flood zone, the lender will require that you purchase flood insurance (see www.floodsmart.gov/floodsmart).
  • Recording fees: The buyer usually pays the fees for legally recording the new deed and mortgage with the local municipality. It is required that these documents be recorded
  • Title Charges: Title charges include a variety of services performed by title companies and others.  These charges can include a settlement or closing fee (a fee is paid to the settlement agent or escrow holder) and fees to cover the abstract of title search, title examination and the cost of owner’s and lender’s title insurance.
  • Attorney fees: Should you or the sellers decide to retain an attorney, the cost is included on the settlement sheet.
  • Transfer tax: In Philadelphia when real property changes hands, there is a transfer tax assessed on the transaction.  That tax amounts to 4% of the purchase price, with 3% charged by the City of Philadelphia and 1% charged by the Commonwealth of Pennsylvania.  Typically the transfer tax is split evenly, with the buyer and seller each paying 2%.
  • Survey fees: If the lender requires that a surveyor conduct a property survey, the fee will be found on the HUD 1.

There are other expenses not required to be listed by RESPA that you will be responsible for paying at settlement.  These include escrow deposits for hazard insurance and real estate taxes.  The lender collects pro-rated portions of these annual expenses with the monthly mortgage payment and then pays the insurance and property taxes when they are due.

While closing costs can be considerable, it should be remembered that some of the items are tax deductible.  The origination fee, prepaid interest or points and property tax adjustments are all considered deductible expenses.

Walk-Through Inspection

Your ICR Realty Specialist will organize a pre-settlement walk-through inspection within twenty-four hours of settlement to ensure the conditions of the Agreement of Sale have been satisfied.   During the inspection you should check to see that all repairs that have been negotiated have been completed to your satisfaction.   Additionally, take a tour of the entire house and note any deficiencies.  Test the electrical plumbing and HVAC systems by turning on all lights, testing faucets and running the heat and, if possible, the air conditioning systems.   Appliances should also be checked to determine their condition.  Should any issues be identified, your ICR Realty Specialist will contact the selling broker to arrange repairs before settlement.

Initiate utility accounts

It is advisable to contact the local utility companies, including the gaselectrictelephone, and cablecompanies  prior to settlement to establish accounts at your new home beginning the day of settlement.  It is important to take this step prior to settlement in the event that the sellers decide to have their service terminated the day of settlement.  It would be most unpleasant if you had made plans to move in immediately following settlement, only to find that one or more of the utilities had been disconnected.

IX. Settlement

The searching, worrying and negotiating that occur during the home buying process consummate in the final step of the real estate transaction; the settlement.  Officially, settlement is the event at which an impartial third party ensures the transfer of ownership from the Seller to the Buyer according to the terms of the written contract.  It usually occurs at the office of the buyer’s title agent or the Buyer’s real estate firm and is presided over by an agent of the title company.  The parties attending the settlement include the Buyer, the Buyer’s real estate agent, the Buyer’s mortgage agent, the Seller, the Seller’s real estate agent and the title agent.   While the numerous documents encountered and the significant sums of money changing hands at settlements have a tendency to raise anxiety levels, the reality is that settlements generally follow a routine order and take place with minimal difficulties.  For those desiring to know what to expect, ICR has taken the liberty of drafting a play-by-play description of events that occur at settlement and the documents encountered there.  While there may be a few other documents that pertain to individual situations that may not be described here, these are the documents and the procedures one can expect to encounter at settlement.

Settlement Summary

  • Verification of identities is made: This is performed by examining and photocopying driver’s licenses.
  • Name affidavits are signed by Buyer and Seller: These documents certify that the parties at the closing are known by the names they are using in the transaction. If one of the parties has a former name or did business under another name, the affidavit makes that fact known.
  • Documents Related to Financing are signed.
  • Good Faith Estimate: Buyers who are financing sign a copy of the good faith estimate of their loans’ costs that they originally received when they applied for their loans.
  • Amortization schedule: Buyers sign a copy of the amortization schedule that details how their payments will be applied to their loans to pay principal and interest over the lives of their loans.
  • Credit Information Disclosure-Buyers receive copies of their credit information and are asked to sign a document attesting that they received them.
  • Truth in lending statement: Regulation Z. Buyers are given this important document that discloses information such as the interest rate, annual percentage rate, amount financed and the total costs of their loans. These are important numbers to check and double check before signing.
  • Itemization of amount financed: This document is like an addendum to the Truth in Lending statement.  It summarizes the costs associated with obtaining the mortgage loan, including points.
  • Monthly payment letter: Buyers sign this document that details their total monthly payments, itemizing the portions for principal, interest, taxes, insurance premiums and other monthly escrows.
  • Borrowers affidavit: Buyers sign this document that states that they have not altered the property in any way that might cloud the title.
  • Loan Application: Buyers receive a copy of the 1003 form, or their loan application.
  • General Documents are signed.
  • Privacy Act: Buyers sign this document that describes their privacy rights as consumers.
  • Flood certification: If Buyers are financing the property, their lenders will generate a documents certifying the flood zone status of their homes.
  • Seller’s affidavit: Sellers sign this document that states that they have not altered the property in any way that might cloud the title.
  • Title Agreement: Buyers sign a document verifying that they had a choice when choosing a title company to provide title insurance.
  • Hazard insurance Agreement: Buyers sign a document verifying that they had a choice when choosing a hazard insurance company.
  • Note: This is the document with which buyers actually borrow the money — and giving their personal promise to pay it back.  Buyers receive a copy at settlement.
  • Mortgage: This document puts a lien on the house as security for the loan.  It is the Buyer’s pledge of the property as collateral for the loan obtained with the note.  Buyers receive a copy at settlement.
  • Affidavit of Title: In signing this document, the Seller swears that nothing has occurred since the Seller’s title search to cloud the title, and that there have been no events that would possibly call into question the Seller’s ownership rights.
  • Abstract of title is examined: The abstract of title is the written report of the title search results. The abstract gives a listing of every document that has been recorded about this particular piece of property.
  • Examination of Settlement (HUD1) sheet: This document is examined to ensure that the settlement costs and amounts have been calculated accurately. The closing agent reviews this document with the Buyer and Seller and their representatives and is then signed by the Buyer and Seller.
  • Deed is signed: In signing the deed, the Seller transfers the title of the property from Seller to Buyer.
  • Purchase money is presented: The Buyer will either present a certified check from the lender for the balance of the purchase price or the lender will wire the money to the title company.
  • Checks are dispersed: The Seller receives a check for the proceeds of the sale, less closing costs and mortgage payoffs, and the seller’s lender, if applicable, is paid the balance of the mortgage loan.
  • Keys are given to the Buyer by the Seller

At the conclusion of settlement, Buyers receive copies of the important documents that they have signed including the mortgage, the note and the HUD-1.  They also receive a copy of the “marked up” title.  A “marked up” title is the working copy of the title commitment upon which the title searcher has made notes about different issues on the abstract of title that the title company considered satisfied or regarded unimportant. These are documents that you will want to file away in a secure place in the event that you ever need them.

X. Post-Settlement

In the days and weeks following settlement you will focus considerable attention upon getting settled in your house and working to turn it into your home.   During that time period you will also engage in a few other exercises including wading through a significant amount of mail and pondering how your home, for all of their advantages, could be improved or who you would call in the event of a maintenance emergency.

Receipt of Documents

You should keep an eye on the mailbox during the post-settlement period as there will be a few documents peppered among the “welcome to the neighborhood” advertisements that you will want to ensure that you receive.  For example, you can expect to receive a copy of the deed that was recorded as well as your official title insurance policy.  These are both documents that you will want to keep in a safe place.  You will also want to be on the lookout for documents from your lender regarding future payments.  At settlement, lenders typically provide borrowers with coupons to make their first few mortgage payments.  In the following weeks, lenders will forward more substantial information about payments and how to make them.

Improvement and Maintenance Contacts

ICR serves as a good resource for its clients in their efforts to establish relationships with contractors who they may need to perform improvements or maintenance.  As a result of ICR’s experience in property management, it has developed a cadre of contacts in the various disciplines of construction.  Therefore, should you have a desire to undertake a bathroom renovation, identify someone to get your furnace started in the middle of a cold winter night, or make contact with someone to investigate and fix a leaky roof, your ICR Realty Specialist will be there to help you, even long after settlement has become a memory.