What is Closing
The mortgage loan closing (or settlement) is when the County
Recorder records the Grant Deed and the Trust Deed. Actual possession of the property
varies according the terms of the contract. In the San Diego area, possession is usually
given to the buyer on the day of closing. In some cases and in some other areas, this
occurs a day or two after the recording.
At closing, the buyer requires that the seller prove the title (ownership) is
complete and free of anyone else's claims. Technically, two separate closings occur
at this time: the closing of your loan and the closing of the sale.
closing meeting is typically attended by the buyer and seller, their attorneys,
both real estate sales professionals, a representative of the lender, and
the closing agent. Fortunatly, in California, we do not have a closing
meeting. We use an Escrow
Co. All the work is done prior to the recording with the help of
the Escrow Co and the other participants in the transaction. In addition
number of other activities.
What Takes Place Before Closing
The final days and weeks before closing can be a stressful period
for both buyer and seller. For example, you may worry that something will happen prior
closing to prevent the sale. The following activities must be performed in the final
weeks before closing:
You need to make sure that a title search on the property has been made and that you have
obtained title insurance before the closing meeting. A title search is required to prevent
fraudulent sales. Lenders want to be sure the seller is indeed the owner of the
property. The title search also attempts to uncover any liens (legal claims against a
property on the title). Any claims against the property must be paid before (or often at)
Title insurance is required as further assurance that the seller
is giving a "marketable title." A lender's policy protects the lender in the event a flaw in
the title is detected after the property has been bought. The owner's policy protects the
buyer. You may also get a price break if the title company that previously insured the
title will give you a "reissue" policy provided you had it
insured or reinsured within the title companies time frames(3-5 years).
Many competing companies will match
that rate if you ask.
Order a Property Survey
The lender may require a survey, or plot plan, of the property. This
is done to confirm that the property's boundaries are as described in the sales
contract. Usually the buyer pays for the survey and the lender
orders it. You may be able to save some money by requesting an "update" from
a surveyor who has surveyed the property previously.
Order a Termite Inspection
In many locations, homes must be inspected for termites before they can be sold. You need
a certificate from a termite inspection firm that states that the property is free of
both visible termite infestation and termite damage. Usually the seller pays for this
and the seller's real estate sales professional orders the termite inspection. But you
will want to make sure that the original certificate is delivered to your lender at least
three days before closing.
Obtain Well and Septic Certifications
If your property is not served by public utilities, you will need local government
certification of the private water source and sanitary sewer facility before closing.
Usually the county government performs the certification.
Go on the Final Walk-Through Inspection
Your sales contract has included a clause allowing the buyer to examine the property
within 5 days before closing. This is their opportunity to make sure the seller has
vacated the house and left behind whatever property was agreed upon. They will also want
to make sure that all conditions of the sales contract have been met. If they
observe major problems, they have the right to delay the closing until they are corrected,
or they could ask that the monies be placed in an escrow account at closing to cover major
repairs to be completed.
Back to top
Meeting to sign
1. First, the escrow agent reviews the
settlement sheet with you and answers any questions. Then you sign the settlement
2. The escrow agent then asks you to sign the grant deed
3. After the meeting, the escrow agent officially records the mortgage and deed
at your local government clerk's office. This legal transfer of the property may take a
few days. The escrow agent usually will not disburse the funds to everyone who is owed
money from the sale until the transaction has been recorded. It is at the point of deed
recordation that you are no longer the owner of the home.
Closing costs vary widely depending a variety of factors,
including price, commission and location. Overall, you can expect your closing costs to
amount to between 7% and 9% of the sales price for houses and condos. See
"Who Pays What".
Back to top
Closing Documents You Receive
You will receive a number of important documents through escrow.
Review the list below to prepare for the documents that you'll receive.
- HUD-1 Settlement Statement: The settlement sheet itemizes the services
provided and lists the charges to the buyer and the seller. It is filled out by your
escrow agent and must be signed by both buyer and the seller. You should have been allowed
to review this form on the business day before your closing meeting so that you
will know your closing costs in advance.
- Affidavits: You will
be asked to sign a FIRPTA AND CAL-FIRPTA in which you declare your
US and CA residency status. If you are not a resident, the government
wants their possoble tax bite up front.
- Deed: Only the seller signs the deed at closing. It is the document that transfers
ownership from the seller to the buyer. At the closing, the buyer will receive a copy
of the deed.
Back to top
Closing-Related Tax Tips for Buyers and
There are certain tax benefits for buyers related to
closing. They are:
- Some of the buyers costs at the time of closing can be taken as deductions on
that year's income tax return. They include any prepaid mortgage interest and property
taxes (consult your closing statement).
- Points paid at the time of closing represent additional mortgage interest, and
the buyer is entitled to take as a deduction not only points the buyers pay, but also any
paid by the seller.
- Many of the buyers other closing costs are simply added to your cost basis for
the house. When you sell, they'll reduce your capital gain. If laws stay the same, you
probably wouldn't owe any tax at that point, due to the generous federal exclusion of gain
from a home seller's income.
- Make sure to keep all your records, including those for permanent improvements,
which are also added to your cost basis. You never know when Congress will change the
rules in the future.
- On each year's income tax return, you may deduct all property taxes paid on any
real estate you own.
- You are also entitled to claim as deductions all mortgage interest paid on a
first and second home. Your deduction is limited to interest on up to a million dollars
borrowed to buy or improve your property, and interest on an additional hundred thousand
dollars in equity loans or second mortgages. If your borrowing exceeds that amount,
consult an accountant and an estate planner.
There are certain tax benefits for sellers related to closing. They are: