We'll start with the first five steps.
Step 1-- Decide Who's Going to Run the Show
Depending on where you live, settlement can be conducted by lenders, title insurance companies, escrow agents, real estate brokers, or attorneys. Your agent or loan officer will probably recommend a settlement agent but you may want to shop around on your own and compare fees. The settlement agent conducts the settlement on behalf of all parties-buyer, seller and mortgage lender. As such, their job is to make sure the transaction is properly handled for all concerned. You may want to hire an attorney to represent you and independently review your sales contract and loan closing.
Step 2 -- Get a Title Search
The lender will require a title search to make sure that nothing interferes with the home seller's ownership of the property. First of all, the lender wants to make sure the seller is indeed the owner to prevent any fraudulent sales. But the title search also informs you and the lender about any prior liens against the seller's home, legal claims that must be paid before you can close.
Step 3 -- Buy Title Insurance
Why do you need it? A lender's policy protects the lender in case a flaw in the title or a claim comes up after closing. An owner's policy protects you. Title insurance provides security so that once you buy the property, you really own it, no matter what happens or who comes forward with a legal claim against your title. Just because you have the deed and things look official, does not mean mistakes or fraud didn't occur somewhere in the past. A signature by an incompetent person, a forgery, clerical errors, an undisclosed heir coming forward after you bought the property� all these problems are your problems unless you have title insurance. An owner's policy also covers you against losses or damages you might incur from not getting complete ownership or access to your land.
For example, if your neighbor disputes ownership of the driveway on your property line, the title company will be responsible for investigating the problem and negotiating with your neighbor. As with any kind of insurance, you hope you never have to make a claim, but in the event you do, title insurance pays for itself in a big way.
Save Money With a Re-Issue Rate
Fortunately, you only have to pay for title insurance once-the coverage continues as long as you own the property. The best way to save money is to ask the current owner's insurance company for a re-issue rate. If the current owner's policy was issued in the last 10 years, you can qualify for up to 40% in discounts on the premiums. The actual discounts will depend on the age and amount of the prior policy compared to the cost of obtaining a new policy.
Shop Around
Some states control title insurance rates. Find out whether rates are fixed in your state. If not, get quotes from several title insurance companies. Don't just compare rates. Remember to ask each provider what services and limitations on coverage they offer, so you can accurately compare policies and their costs. If you're buying a new-construction home, make sure your title insurance includes coverage against claims by contractors, sometimes known as "mechanics' liens."
Step 4 -- Get a Property Survey "Update"
Most lenders and title insurance companies require a property survey to mark the boundaries of your house and property. Find out from your lender and title insurance company if an updated survey is acceptable. You can avoid paying for a full survey by getting an "update" from the surveyor who previously surveyed the property.
Step 5 -- Compare Homeowners Insurance
Yet another item to purchase prior to closing is hazard insurance. Your lender will want it, but you must have it to protect yourself from damage or destruction of your home. Coverage must at least equal the cost of fully replacing your home in the event of fire or other causes. It's not a good idea to purchase a home in a flood plain but if you live near a body of water, be sure to investigate flood insurance. Homeowners insurance also includes personal liability in case someone is injured on your property, as well as personal property coverage in case of theft.
How to Cut Costs
Most lenders want homebuyers to pay for a full year's insurance premium at closing. If you don't want to pay the full premium upfront, ask your lender to pay it from escrow so you can contribute to the cost as part of your monthly mortgage payments. Remember that homeowners insurance is highly competitive-quotes can vary by hundreds of dollars. Take time to shop around. Ways to save include:
Ready for Steps 6 through 10?
Just keep going!
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