From start to finish, the budget for your home buying journey is an important piece of the whole puzzle. Loan amounts and fees for all involved need to be considered, but today, we would like to talk about how much money you might need at your closing appointment.
That amount will largely be driven by your lender, and that starts at the beginning of your search and tracks all the way through to the settlement table. Before you start looking, you should meet with your lender for your loan qualification…how much you can borrow and the sales price you can afford. The lender will then give you a “Good Faith Estimate”, which is a ballpark figure that will include lender fees, title company fees, recording fees, etc. These added with the down payment will be a rough estimate of what you will need at closing.
Please keep in mind that this figure is a very loose approximation. When you get your ratified contract and it’s sent to your lender, you will receive your Loan Estimate. This federally-created form is very similar to your final form called a Closing Disclosure. Through mandated tolerances, your lender will be very thorough with these numbers and is held to the numbers provided in your Loan Estimate. Essentially, they need to be very close to the amount you need. In this document, the fees will be broken down so that you can understand what your bottom line will be at settlement, and there aren’t any surprises.
Throughout the process, your lender will update numbers for you. If there is a change in the interest rate or another fee, your lender can help you stay current with your dollar amount so when you reach the closing table, the Closing Disclosure will be as similar as possible to your Loan Estimate.
Three days prior to settlement, your lender must present you with a Closing Disclosure. You could receive this form more than three days prior, but it can’t be less. (Sundays and federal holidays are not included in the three-day period.) If this isn’t provided, you won’t be able to close on time.
However, this does not mean those numbers are 100% locked in and won’t change; it means your closing balance is going to be really close. It could be that another bill comes through; perhaps the cost of the termite inspection comes along. We may receive notification of a transfer fee from your new Homeowners Association.
Once you receive your Closing Disclosure, your lender might reach out to you to go over everything in the documentation. If not, connect with them, and ask them to run through it with you. Consider asking the following questions…
- Is this the final number?
- Are we waiting on anything to come through?
- Is the loan type the same
- Have interest rates changed?
You can also contact Highland Title + Escrow, and we can let you know what we are expecting, what we have so far, and if we are waiting on any final numbers from your lender.
Behind the scenes, there is often a back-and-forth between your lender and us, as your title company, prior to you receiving your Closing Disclosure. We receive the numbers from your lender. Ours are added in and sent back. This information is used to put your disclosure together by your lender and is returned to us. We look at it and approve it on our end; then, return it to your lender for their approval. All of this happens before the disclosure is delivered to you. (Your loan officer is a valuable resource during this process. You are probably familiar with that officer and should reach out with any questions concerning the process or timeline.)
Now is a great time to figure out how the money gets where it’s going. At Highland Title + Escrow, we accept a wire transfer or a cashier’s check, but how will you get that to us? It’s important to know what your bank requires. Most banks allow the wire to be handled online while others require you to be physically present. If a bank does allow you to set up the transfer online, there may be a daily limit. (We also accept personal checks up to $2,500.)
If you choose to wire, we recommend sending the wire the day before closing. (If you are getting money from a retirement account or from overseas, you may need to start much sooner.) Depending on your bank, it may or may not be sent right away. A bigger bank might be able to send the wire immediately while a smaller credit union may only send wires twice a day during certain times.
For your security and ours, we cannot stress enough the importance of verifying your wiring instructions to thwart wire fraud…especially if the instructions you receive have a sense of urgency. If you have received instructions through email, please take the time to give us a call at (703) 723-3300 (not the phone number that came with the wiring instructions…scammers are cagey) to confirm the instructions came from us and to clarify any questions you may have. If your funds are wired to the wrong place, you might be out that money, and you are also defaulting on your contract. There could be even more financial repercussions than you realize. Take the extra step, and make the call.
Once you are ready for payment, we recommend that you aim high…literally. If you go with the number in the disclosure and we find the taxes due have been paid by the seller, the amount due back to the seller will be in your debit column for proration. (See our blog concerning the buyer’s ALTA Settlement Form.) Therefore, you would owe more money with a cashier’s check, or you may need to set up another wire. Adding a cushion of $500-$1,000 can save your closing. Of course, if the money isn’t needed, it will be returned to you after settlement…and getting money back is much nicer than owing more. Bring your checkbook or wiring instructions with you to closing, and we can send it back to you. Talk with your lender or give us a call for advice.
As always, if you have any questions or concerns, you can contact us at (703) 723-3300 or through our website.