If you’re in the process of purchasing a new home, on your bank paperwork, you may have noticed something called “mortgage insurance.” Not sure what it is? There are several different types of insurance that homeowners should be familiar with. Here, I will explain the basics.
Title insurance from the seller comes from the title company. It protects home owners and lenders from damage or property loss that may happen because of liens or other defects in the title to the property. Each title insurance policy is subject to specific terms, exclusions, and conditions.
Homeowner’s insurance/hazard insurance/fire insurance is a policy issued from an insurance company and it protects your property as well as the contents and possessions inside. It also provides liability coverage against accidents in the home or on the property. At closing, homeowners will pay for the first year’s policy in full.
This type of insurance is not a benefit to a homebuyer. When a lender provides a loan and the buyer puts less than 20% down on the purchase, the lender takes a bigger risk. If the buyer ends up defaulting on the loan and they don’t have much “skin” in the game, it’s possible that the lender won’t cover their loan amount when it comes time to liquidate the property. This cost can be paid within your monthly mortgage payment or up front and it will cover the lender’s loss if something were to happen. For some types of loans, particularly FHA loans, the premium will last for the life of the loan, even though your equity position might get you above the 20% mark. Conventional financing will typically have a provision for mortgage insurance that can be removed once the homeowner has 20% equity in the home.
Buying a home requires many different steps and there is a lot of research that is required. The insurance process can be complex and sometimes confusing, especially if you haven’t gone through the home buying process before, and that’s one of the many reasons why it is important to work with a well-qualified, experienced, hands-on Realtor. If you have questions about it, I’m happy to sit down and talk with you about any questions you may have!
So you’ve made it through the home inspection and the appraisal on your home sale and now you only have to ‘finish up’ with the closing, right?
First of all ‘closing’ is a process not an event. There are lots of steps involved in the last week before recording, which is actually when the home changes ownership. As of October 3 of this year, there is a new federal set of guidelines (TRID) that involves a very complicated sequence of timed events which must be taken into account as we schedule this last week of activities.
There are two perspectives for all this: one for the seller and one for the buyer. However, they are totally intertwined. It starts with the final approval of the loan and the generation of a financial summary of the transaction called the Closing Disclosure. Depending on the bank (and different ones are reading the guidelines differently), this disclosure must be delivered to the buyer and acknowledged by them. After this, there is a waiting period of at least 3 and up to 7 business days. Most lenders will not let anyone sign until the waiting period is over. Then, loan documents are generated, sent to escrow, and the signing appointment is set up. Both parties will sign (not at the same time) and then escrow gets clearance from the lender to record. Once recording occurs, the seller gets their funds.
This process of course gets more complicated if the buyer is getting their funds from a property sale (now there are two sets of TRID guidelines) or someone is out of town (at least one of the seller documents—the deed—must be signed ‘wet’ and the original returned to escrow before recording) or any number of logistic elements.
Here are some tips that can help the closing process go smoothly:
Tip #1: Stay organized.
Realtors are trained to help walk you through each step of the closing process, but it is helpful to keep your Realtor in the loop in regards to packing, moving, and where you will be living during the last week of the closing process. Keeping organized will help reduce any frenzied feelings and will help save you time in the long run.
Tip #2: Be patient.
Patience is key during this process. You likely want to get things done as quickly as possible, but the closing process will take some time and if you know this going into it, you’ll be better prepared to make it through without a lot of stress.
Thank goodness you have an experienced guide through all this—me! We’ll work it all together and make it over the goal line smoothly.