Who Owns What?
In buying a car, you see the Owner's registration certificate as proof
of ownership or clear title. The burden of proof is upon the owner.
When you go to buy a house, the burden to provide clear title is
usually the responsibility of the Seller. The Lender will not give you a
mortgage until you can prove that the present Owner of the house legally
owns it.
Title insurance
It is likely that a title insurance policy will be required even though
a formal title search was done. This is to guard against the possibility
of error by whomever searched the title on the home. Errors in this area
are pretty rare, but when they do occur, they are catastrophic for all
parties concerned. The cost of this policy is a function of the value of
the house and is often home by the Buyer.
The title insurance policy lists the Lender as the beneficiary. You
would need to take out an Owner's title insurance policy to protect
yourself. The additional premium cost will usually be only a fraction of
the Lender's policy and is worth it for peace of mind.
Mortgage-Related Closing Costs
Another major category of closing costs involves mortgage money.
Following is a list of what this includes:
LOAN APPLICATION FEE - This fee
covers the initial costs of processing your loan request, checking your
credit history and preparing the loan documents. The existence and amount
of this fee varies from one Lender to another; typically, this fee is not
refundable even if the loan is not granted.
PROPERTY APPRAISAL FEES - All
Lenders require an opinion, usually by an independent appraiser, of the
market value of the home being purchased. The appraisal gives the Lender
some confidence that if the Borrower defaults, the Lender can recover its
loan money from the sale of the home after foreclosure.
LOAN ORIGINATION FEES - Also known
as "points." Each point equals 1% of the mortgage amount; they
represent the equivalent of prepaid interest and are customarily tax
deductible.
MORTGAGE INSURANCE - The tender may
require you to purchase mortgage insurance as a condition of granting the
loan. The most common reason for this insurance is because the Borrower's
down payment is less than the Lender's normal minimum (usually at least
20%). it protects the Lender from loss if the Borrower defaults. (This
insurance does not protect the Borrower, but it may allow the Borrower to
get a loan for which he,/she might otherwise not get.) For a typical 90%
loan, you are charged an annual fee of .62 5% of the loan amount.
HOMEOWNERS HAZARD INSURANCE - You
will be required to have a policy in effect at closing with the first
year's premium paid in full. This insurance is protection against physical
damage to the house by fire, wind, vandalism and other causes. (minimum
coverage is to be no less than the mortgage amount.)
We'd like to point out that there may be additional costs involved with
your mortgage. They would be documented and explained before the closing.
NOTE. The checklists used in this
pamphlet are for your general guidance only; your Lender may require
different or additional information. The loan charges and fees for
services mentioned are provided only for examples; the fees can vary quite
a bit depending upon whom you ask to provide the service; the loan charges
also will vary depending upon the lender and the type of loan. You should
receive a Good Faith Estimate of settlement Costs which, though still an
estimate, will be more specific to the loan product for which you have
applied.
