Common Questions About FHA Closing
What
happens at closing? - (Top)
Basically,
you'll sit at a table with your broker (licensed individuals
or firms that serve as mediator between buyer and seller)
and your real estate agent, the seller's broker or agent-,
the seller (usually), and a closing agent (usually a lawyer).
The closing agent will have a stack of papers for you and
the seller to sign. While he or she will give you a basic
explanation of each paper, you should take the time to read
each one completely and/or consult with your agent to make
sure you know exactly what you're signing. After all, this
is a large amount of money you're committing to pay for
many years! Before you go to closing, your lender is required
to give you a booklet explaining the closing costs, a "good
faith estimate" of how much cash you'll have to supply at
closing, and a list of documents you'll need at closing.
If you don't get those items, be sure to call your lender
BEFORE you go to closing. Never hesitate to ask questions.
![[Photo: Team discussion]](images/photos/2007-06-01e.jpg)
You'll
have to provide your paid homeowner's insurance policy and
a receipt showing you have paid the premium, or a binder
(a formal statement and deposit payment receipt that shows
you agree to purchase insurance). The closing agent will
then list the money you owe the seller (remainder of down
payment, prepaid taxes, etc.) and then the money the seller
owes you (unpaid taxes and pre-paid rent, if applicable).
You should also bring some extra funds with you to cover
any costs that may come up. The seller will provide proof
of any inspections, warranties, etc.
Once
you're sure you completely understand all the documentation,
you'll sign the mortgage agreement. This means you agree
that if you don't make your payments, the lender can sell
your property and apply the sale profit to the amount you
owe and add expenses. If it sells for less than the loan
amount, you will still be responsible to pay the rest that
is owed on the loan. You'll also sign a mortgage note, promising
to repay the loan. The seller will give you the title to
the house in the form of a signed deed.
You'll
pay the lender's agent all closing costs and, in turn, he
or she will provide you with a settlement statement of all
the items that you have paid. The deed and mortgage will
then be recorded in the state Registry of Deeds, and you
will be a homeowner!
How
much cash do I need? - (Top)
To find
out how much cash you need, add up the items below and subtract
them from the amount of the insured mortgage:
- Any
up-front mortgage insurance premium (MIP)
- Pre-paid
expenses and closing costs (described below)
- All
non-realty items, repairs, etc., that cannot be financed
into the loan, plus
- The
required down payment.
On your
FHA loan, the sum of these costs must equal at least 3%
of the sales price.
What
are closing costs? - (Top)
Closing
costs are the various fees and charges you take on when
you buy a home and obtain a mortgage. They also include
various taxes and fees paid to the state and local government.
Typical closing costs include:
- Items
payable in connection with the loan: These are
the fees that lenders charge to process, approve and make
the mortgage loan. They include a loan origination fee,
discount points, appraisal fee, credit report fee, and
inspection fees.
- Items
required by the lender to be paid in advance:
These are certain items the lender may require to be pre-paid
at settlement. They include items such as accrued (accumulated)
interest, mortgage insurance premiums (MIP) and hazard
insurance premiums.
- Escrow
account deposits: These are deposits by the borrower
to set up an escrow account for paying taxes and/or insurance,
or other items. The law does not allow a lender to collect
more than a certain amount.
- Title
charges: Title charges may cover a variety of
services performed by title companies and others.
- Government
recording and transfer charges: The borrower
or the seller pays these fees, or divide them, depending
upon the sale agreement. The buyer usually pays the fees
for legally recording the new deed and mortgage (line
1201). Property transfer taxes are set by state and/or
local governments and can be very high. In some places
these taxes are collected whenever property changes hands
or a mortgage loan is made. There may also be charges
for city, county and/or state tax stamps.
- Additional
settlement charges: These include items such
as a property survey, termite inspection, lead based paint
inspection, and radon testing.
Homeowner's
insurance? I thought FHA insured my mortgage. - (Top)
FHA
mortgage insurance protects your lender
against possible loss if you get into financial trouble
and can't make your payments. It won't protect you against
loss however, if you have a fire, an accident, or a robbery.
That's why you need homeowner's insurance. Like anything
else, it pays to shop around. The Federal Citizen Information
Center has a lot of good advice about homeowner's insurance
at consumeraction.gov/caw_insurance_homeowner_renter.shtml
What
is an escrow account? - (Top)
FHA
requires lenders to establish escrow accounts (funds are
held in trust by an outside agent) and requires that borrowers
make monthly payments to ensure that funds will be available
to pay the following items when they come due:
- Real
estate taxes
- Monthly
mortgage insurance premiums
- Hazard
insurance premiums (protection against fire, floods, etc.)
- Special
assessments
- Ground
rents
Lenders
must also escrow (hold in trust) funds for those items that,
if not paid, would create claims on the property with priority
over the FHA-insured mortgage.
