Everything is in place to close on your new home. Your mortgage company has just handed you a loan estimate.
On it you see a cost for title and settlement fees.
For most people, this is an unfamiliar term. What does it mean and why should you pay for it?
Without this service, ownership cannot transfer to the new owner. To understand how the process works, here are the five steps title companies take to get you to closing.
What is Title?
Let’s start with “title.” This is a legal term that refers to homeownership rights.
Before you can legally purchase the property, a title and settlement company must perform a title search to make sure the title to the property is “clear,” meaning there are no encumbrances on the title.
Title Search and Examination
A title search details past ownerships and uncovers anything that might hinder the sale. For example, outstanding liens, overdue property taxes, and judgments, to name a few.
If any red flags are found, the outstanding balance must be paid off before the transfer of ownership can occur.
But it’s not just monetary issues that can occur. A title search might also uncover property limitations and restrictions. Some examples are easements that could give parties such as utility companies access to your property.
There could be boundary issues or the property could have an historical status which means certain rules must be followed to modify or make changes to your home.
As you can see, the purpose of the search is to protect the buyer and the lender from any unresolved title issues. If an issue is found with the title, does that mean you cannot close on the property?
Not always. If the problem can be cleared, then the transaction can be completed.
Fixing Errors and Title Issues
Here at Lilly Title and Settlement, when we find an error or a title issue, we immediately work to resolve it to keep the closing on schedule.
That means we may talk with the current owner. If the issue involves an ownership dispute, we may ask for paperwork to prove that the current owners are the rightful owners of the property.
If the problem is an unpaid roofing bill, the owner will need to resolve that with the company so that the closing can continue.
Homeowner’s Title Insurance
While a title examination protects the buyer from recorded errors and title discrepancies, it does not protect the new owner from “hidden defects” such as forgeries, lost wills, and false representation, to name a few.
That’s where homeowner’s title insurance comes in. This optional coverage gives new homeowners the peace of mind they need for as long as they own the property.
Bear in mind that homeowner’s title insurance is NOT the same thing as lender’s title insurance. The latter is required by the lender for the buyer to purchase. This insurance protects the lender from any possible event that is not part of the public record and could adversely affect property ownership.
Your lender is looking out for their financial interests. It’s up to you, the buyer, to do the same!
Once a clear title has been established, and all other items required by the lender have been satisfied, the title company can now schedule a closing.
At closing, you will need to sign closing package documents. These documents will be previously reviewed by you before closing.
If you’re buying a home, these documents will include the transfer of ownership agreement. If you’re refinancing, it will include paperwork for that transaction.
Additionally, you may also need to wire money or write a check for closing costs, mortgage escrow for homeowners’ insurance, as well as property taxes.
Once this is done, and you’ve signed and notarized all the required documents, they will be sent to the title company to review, and then to your lender.
When all the documents have been approved, only then will the lender send the funds to the title company who distributes them.
Mortgage Recording and Funding
Following closing, the title company will submit and record your mortgage with the city or county in which you live. The details will then become public record.
Finally, the title company will disperse funds for a new mortgage loan, including taxes and homeowners’ insurance, if it’s applicable.
If you’re refinancing, the title company pays off your previous mortgage.
Title and settlement services are a critical part of the real estate buying process. Not as visible as your real estate agent or loan officer, the title company works behind the scenes to help you safely and securely buy a new home or to refinance your current home.
When you’re ready to close on your next home, or you want to refinance your current property, turn to the pros at Lilly Title & Settlement Company, a woman-owned company in Staunton, VA. Learn more about us here.