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It's the big day.
The day you go to the title or escrow company, sign your
name on the dotted line, hand over a check and prepare to
take ownership of your new home.
It's also the day that you and the seller will pay "closing"
or settlement costs, an accumulation of separate charges
paid to different entities for the professional services
associated with the buying and selling of real property.
It's too often a day filled with uncertainty and stress.
To help you better understand this confusing subject, the
Land Title Association has answered some of the questions
most commonly asked about title, closing and closing costs.
What services will I be paying for when I pay closing
costs?
You will usually be paying for such things as real estate
commissions, appraisal fees, loan fees, escrow charges,
advance payments such as property taxes and homeowner's
insurance, title insurance premiums, pest inspections and
the like.
How much should I expect to pay in closing costs?
The amount you pay for closing costs will vary; however,
when buying your home and obtaining a new loan, an estimate
of your closing costs will be provided to you pursuant to
the Real Estate Settlement Procedures Act after you submit
your loan application. This disclosure provides you with a
good faith estimate of what your closing costs will be in
the real estate process. An itemized list of charges will be
prepared when you close your transaction and take title to
your new property.
Can I pay for my closing costs in installments?
No, and it is easy to understand why. Many different parties
will have fulfilled their responsibilities and be awaiting
payment upon closing. The title or escrow company will
disburse money to those parties, pursuant to the escrow
instructions, when funds are available.
Will I be allowed to write a personal check to cover my
closing cost?
Your closing funds should be in the form of a cashier's
check, issued by an institution from the state of your
purchase, made payable to the title company or escrow office
in the amount requested. A personal check may delay the
closing or may be unacceptable to the title or escrow
company. An out-of-state check could also cause a delay in
your closing due to possible delays in clearing the check.
How much can I expect to pay for Title Insurance?
This point is often misunderstood. Although the title
company or escrow office usually serves as a meeting ground
for closing the sale, only a small percentage of total
closing fees are actually for title insurance protection.
Your title insurance premium may actually amount to less
than one percent of the purchase price of your home, and
less than ten percent of your total closing costs. The title
policy is good for as long as you and your heirs own the
property with the payment of only one premium.
Why are separate owner's and lender's title insurance
policies issued?
Both you and your lender will want the security offered by
title insurance.
Your home is an important purchase, and you will want to be
certain your home is yours, all yours. Title insurance
companies insure your rights and interests in order to
protect you against claims.
Your lender is looking to insure the enforceability of their
lien on your property and marketability. What is meant by
"marketability"? Local lenders will "originate" a loan here,
and, often, sell it to an out-of-state investor. This
investor, who may never see the property, needs to know that
he has a valid and enforceable lien. Title insurance is the
way of making certain. Without a current title policy, the
loan is essentially unmarketable.
What does my Title dollar pay for?
Title insurers, unlike property or casualty insurance
companies, operate under the theory of "risk elimination."
Risk elimination can only be accomplished after an intensive
period of risk identification.
Title companies spend a high percentage of their operating
revenue each year collecting, storing, maintaining and
analyzing official records for information that affects
title to real property. The issuance of a title insurance
policy is highly labor-intensive. It is based upon the
maintenance of a title "plant" or library of title records,
in many cases dating back over a hundred years. Each day,
recorded documents affecting real property are posted to
these plants so that when a title search on a particular
parcel is requested, the information is already organized
for rapid and accurate retrieval.
Trained title experts are able, with the aid of their
extensive title plants, to identify the rights others may
have in your property, such as recorded liens, legal
actions, disputed interests, rights of way or other
encumbrances on your title. Before closing your transaction,
you can seek to "clear" those encumbrances which you do not
wish to assume.
The goal of title companies is to conduct such a thorough
search and evaluation of public records that no claims will
ever arise. Of course, this is impossible--we live in an
imperfect world, where human error and changing legal
interpretations make 100 percent risk elimination
impossible. When claims do arise, title insurance companies
have professional claims personnel to make sure that your
property rights are protected pursuant to the terms of your
policy.
To conclude, when you pay for your title insurance policy,
you are paying for a team of professionals who have worked
together to deliver you a title insurance policy which
represents protection for your ownership of real property.
Who can I look for straight answers on Title, Closing,
and closing costs?
Island Title Guaranty Agency at 239-542-6069
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