How to Avoid Nasty Surprises at the Closing Table A few steps.
After taking all these preliminary steps, and saving money in the process, you're finally ready to stride confidently to the closing table, ready to sign the dotted line. Don't let down your guard! There's a saying in the real estate industry that you could hide a Volkswagen in a stack of settlement documents, and most homebuyers wouldn't find it. In other words, those documents contain so much information that it's easy to miss a key detail or discrepancy that could cost you hundreds or thousands of dollars.
Check Closing Costs... And Check Again
Good Faith Estimate
You should have already received a copy of the Good Faith Estimate of Settlement Costs-the lender or mortgage broker was required by law to provide it after you applied for the loan. Consider the Good Faith Estimate your guide, as a consumer, to the service charges you'll be asked to pay for closing. Take your time going over the numbers. Remember that these are estimates and not guarantees-the lender might need to adjust the numbers at closing. But that doesn't justify major price swings. You relied on the Good Faith Estimate in comparison shopping for a loan, so you have every right to question any major discrepancies.
HUD-1 Settlement Statement
This statement is a final itemization of all your loan costs and terms. You have the right to inspect the final Settlement Statement one business day before settlement. Call your lender or settlement agent and request that they fax or deliver this document to you ahead of time. In cases where there is no settlement meeting, the escrow agent should deliver it to you prior to performing the settlement.
Look for Discrepancies or Overcharges
Be sure to compare the original Good Faith Estimate of Closing Costs with the final HUD-1 Settlement Statement. Note any large discrepancies in fees charged and bring them up with your lender or settlement agent. Also, remember that everything's negotiable. Beyond challenging simple discrepancies, however, the time to negotiate major closing costs is long before you reach the settlement table. By that time, it's too late to rock the boat.
NOTE: The HUD-1 Settlement Form is available here.
Now let's look at some pitfalls to avoid:
1. Not being prepared to do everything on closing day can be a mistake. You need to know what is going to happen and make sure that everything is done prior to that day (or meeting time).
2. Not realizing that new construction homes may require a little more finessing at the table. If the house is not absolutely complete, your lender may want to hold back some of the money until the work is complete. Be prepared.
3. Not doing a title search or getting title insurance can make you lose your home. This insurance protects you from another person claiming to own your house.
4. Not taking the time to compare homeowner insurance policies for the best deal. Lenders will require you carry a policy. Be sure to take charge and get the best one for you.
5. Not having an inspection and walk-through prior to purchase. The inspection will tell you if there are problems with the home that need to be addressed at closing. The walk-through makes sure that everything is the way it is supposed to be according to the contract, i.e. the curtains are still there, there is no new damage from the sellers moving out, etc.
6. Not being prepared to fight a low appraisal so you can get the house and funding. A low appraisal could cost you the house. If the appraisal is lower than the loan amount, the lender will readjust the amount to be lent. This means you will either have to walk away or raise your down payment to cover the difference.
7. Not checking, rechecking and checking again closing fees before signing the documents and cutting your check. It is easy to be fooled by the stack of papers on the table and pay more than you should. Take your time and make sure everything matches the Good Faith Estimate or is a logical and explained adjustment.
That Wraps Up the Settlement Process
Ready for a quiz to test your new skills? Be sure to review the sections of the course related to your wrong answers!
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