Settlement is baffling to many people and with good reason: It's not something that most of us do everyday. But settlement -- also called "closing" or "escrow" -- is actually a fairly straight-forward event. The borrower wants money, the lender wants the right paperwork, the government wants taxes and buyers and sellers want to make sure their transaction is completed in exactly the way they agreed in sale documents.
But there are some steps everyone can take that will make settlement easier and more understandable. Here are the five biggest points to consider:
First, the people who conduct settlements are agents of the settlement process. That means they do not work for the buyer, seller, borrower or lender. Instead, they make sure that all agreements are completed as written. Your closing agent -- whether a title officer, escrow agent, or attorney -- is there to make sure everything is done properly and legally, but he or she is also there to answer your questions.
Second, there are a lot of rules in the closing process which protect mortgage borrowers. Closings are generally regulated under the Real Estate Settlement and Procedures Act or RESPA, legislation which covers disclosure of mortgage terms to borrowers. The Good Faith Estimate, or GFE, discloses mortgage rates, loan amounts and monthly payments for principal and interest. RESPA is also the basis for the central form used to conduct closing. The HID-1 reconciles the actual fees charged with those disclosed during the loan process and makes sure there are no unexpected increases in fees. In fact, if certain fees increase beyond allowable tolerances, the lender has to eat the difference.
Third, you should never feel rushed. You can request your mortgage documents early and go through them at your leisure before closing day. You probably don't even have to be there on the actual closing day -- it's not unusual for one or both parties in a settlement to close at different times. It is possible to close by mail or overnight delivery or through the use of an attorney. For specifics in your jurisdiction, speak with your settlement provider. In addition, if it would make you more comfortable to have your real estate agent or mortgage lender present, ask -- these people work for you. They should be willing to at least be available by telephone during your schedule signing.
Fourth, you should never feel inconvenienced. These days, dining room settlements are becoming more common. Instead of going to a settlement office, someone -- often a notary -- comes to your home. Such closings are quick and convenient, take place in a comfortable environment and can be scheduled according to your needs.
Fifth, you want to save your settlement paperwork. Why? Because settlement documents are often important when it comes time to deal with taxes and estates. While it may be okay to hold onto to most documents for a given number of years, settlement papers should be kept forever.
Another reason to keep settlement papers is to prove that you have title insurance in case there is ever a dispute or a claim. In addition, if you refinance within a few years, you may be eligible for a discounted "re-issue" rate on your title insurance. The discount generally applied if the property has been financed during the past five or ten years. This is another subject to discuss in advance with your settlement provider.