Step 8: Close the Deal
Your accepted offer includes a closing date, Which is when the funds will be exchanged and the title will transfer to you. While most closings occur on schedule, there are many potential pitfalls that can cause delays. Title problems on the seller's side are a common cause for postponed closings. Delayed verification of a buyer's income may cause a closing to be rescheduled. If there is a problem, you and the seller can normally agree on an extension.
Ways to Take Title in Illinois
Illinois recognizes ownership in severalty, tenancy in common, joint tenancy, tenancy by the entirety, and ownership by partnership and trust. It does not recognize ownership in community property.
In Severalty
Purchasing as an unmarried, sole buyer of a property.
Tenancy in Common
Two or more people buying a property together can hold title as tenancy in common. Ownership interests can be equal or unequal among partners. Each owner can transfer their interest to other parties without the consent of the co-owners. Upon death, partners' interests pass on to their heir(s) or devisee(s), not to the other co-owners.
Joint Tenancy
Joint tenants have equal interests in a property. All owners must participate in a sale. Upon death, a co-owner's interest passes on to the other owners, not to their heir(s) or devisee(s).
Tenancy by the Entirety
This is a special form of ownership for married people in which both parties have equal ownership, and both are required to agree to a sale. When one spouse dies, the property automatically transfers to the other partner, who then becomes the sole owner.
Ownership by Partnership and Trust
These are more complicated processes for taking title that require consultation with your lawyer. Generally, you need to transfer the title to the partnership or trust after the closing, since most lenders will only lend to individuals or corporations.
In addition to the down payment, you will pay fees for loan processing and other closing costs. These fees must be paid in full, usually with cash, cashier's check, or wire transfer at the time of the closing unless you are able to include some of them in your financing. Fees for an appraisal, credit report, home inspection and other services will have been paid before the closing. Typically, closing costs will range from 1%–2% of your loan amount. Fees commonly paid at the closing include:
- Loan origination fees: Many lenders charge an "origination fee" of approximately one point, or 1% of the loan amount.
- Points: If your loan includes other points, they will also be due at closing.
- Title insurance.
- Environmental Protection Agency (EPA) endorsement on the property.
- Title company fees.
- Prepaid mortgage interest, property taxes, and insurance. If your down payment is less than 20%, your lender may require that you pay the first year's premium for private mortgage insurance (PMI) up front, usually about .073% of the loan amount. The first year's premiums for home owner's insurance are due at closing, as well as pro-rated mortgage interest to the end of the month of sale and pro-rated property taxes.
- Transfer taxes and recording fees for the city and county.
- Attorney fees.
RESPA - Real Estate Settlement Procedures Act
The RESPA (Real Estate Settlement Procedures Act) was passed by Congress in 1974 for the purpose of protecting consumers. Some important contributions RESPA has made for the home buying process are:
- RESPA prohibits real estate professionals from receiving referral fees and kickbacks for services they did not actually perform.
- RESPA requires detailed disclosures that describe settlement costs; escrow account summaries, procedures and practices; and services provided by lenders.
- RESPA requires the disclosure of relationships and affiliations between all settlement services involved in a transaction. Borrowers are required to receive these disclosures at predetermined times throughout the transaction. For example, lenders are required to provide borrowers with "Good Faith Estimates" for the costs associated with their services at the time a loan application is taken.
What Loans are covered by RESPA?
- Residential one-to-four unit properties, which are secured with a mortgage.
- The majority of home improvement loans, assumptions, refinances, homes equity loans, and lines of credit are subject to RESPA and are enforced by the Department of Housing and Urban Development (HUD).
Disclosures a Lender Must Make at the Time of a Loan Application.
- Mortgage Servicing Disclosure - This informs the buyer of the lender's possible intentions of selling the loan to another lender, or if the lender typically services the loan themselves. This also details the company's history in selling or obtaining the loans.
- (GFE) Good Faith Estimate - An estimate of the various settlement costs associated with a loan. Estimated charges and cost the buyer will pay at the closing table are detailed. However, actual costs vary, as it may be difficult to estimate precise costs. GFE discloses information about lender requirements of using a specific settlement provider. To insure the GFE is as accurate as could be, a borrower should provide the lender all information that is asked in connection to the loan.
- Presentation of forms at the time of application - In the event the lender fails to provide these forms at the time of application, they must, within three days, mail them to the borrower. The lender is under no obligation to provide these documents in the event the loan is denied.
Disclosures Provided Prior To Closing
Affiliated business arrangement disclosures - When a REALTOR®, lender, or another participant in the settlement process refers a borrower to an affiliate this must be disclosed to the borrower prior to closing. This disclosure states that you are not required to use the services of the affiliate, and may seek another provider if you so desire.
Disclosures Provided at the Time of Settlement
HUD-1 Settlement Statement - This document details the actual charges that occur at the closing table:
- Initial Escrow Statement - Details insurance prepaid, taxes collected, and other amounts held in escrow by the lender. This statement is to be delivered by the lender within 45 days of closing.
- Annual Escrow Statement - This summarizes escrow payments, which are made for the year, and discloses what course of action will be taken in regards to account shortages or surpluses.
To find out more information about RESPA you can read more here.
Your Closing
At your closing appointment, you will meet with the seller and their REALTOR®, along with a representative from the title company. The title company will have all necessary documents prepared, such as the new deed of trust on the property (which gives the lender the right to sell the property if you fail to make the payments) and a promissory note (evidence that you are personally responsible for repaying the loan) required by the lender, so all you have to do is read and sign them.
You will be required to pay the down payment at this time, so remember to bring cash, cashier's check, or wire transfer in the necessary amount, made payable to yourself. You will then endorse the check to the title company. Also bring payment, as specified by the title company, for paying incidental closing costs. The entire process usually takes about two hours, after which the property is legally yours.
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