It’s finally here…Closing Day, and all of your hard work has paid off. At Highland Title + Escrow, we want your smooth settlement to be the conclusion of your home buying journey. That means your understanding of what is happening with your money is a top priority.
Today, we would like to discuss the American Land Title Association (ALTA) Settlement Statement. This statement was created by ALTA in compliance with the Consumer Financial Protection Bureau’s (CFPB) TILA RESPA (TRID) Integrated Disclosure rule.
We understand this is a mouthful of acronyms. The CFPB refers to this rule as the “Know Before You Owe” mortgage disclosure rule, and we’ll walk you through the statement from beginning to end. (Your copy from us will look different only in the fact that we have personalized it for our company’s use.)
At first glance, you will see all of the important information concerning the logistics of the transaction, such as dates, file numbers, your name, the seller’s name, the lender’s name and the physical property address. Then, you will find the two columns that count…a debit and a credit column. The debit column is money you will be paying out, and the credit column is money coming in or a fee that has already been paid.
So…let’s start with the first number and work our way to the final bottom line. (If you click here, you can see an example.)
- Typically, the first number you see will be in the debit column, and that is the sale price of your property.
- Next will be a credit in the form of your earnest money you agreed to put down in the contract.
- Prorations are next. These include property taxes and HOA/Condominium fees that are prorated so that you are only paying for the time you actually own the property. It could be in the debit or credit column depending on the time of year. For example, the second half of the calendar year tax bills for properties in Northern Virginia were due Dec. 5th, 2021. If you closed on December 6, you would owe the seller for the remaining December days because they have already paid the total tax bill through the end of 2021. However, if you close on January 10, 2022, it will switch to a credit. You will pay your property tax bill for the entire first half of 2022 in July of 2022, but you didn’t own your home for the first nine days of January. The seller will pay you the prorated amount for those nine days in this section of the settlement statement.
- Loan/Lender fees will be next. The home loan amount will be in the credit column because the lender is sending your purchase funds to us on your behalf. This section will also include any fees…origination charges, appraisal fees, funding fees, document preparation fees. etc. All charges will be shown in the debit column because you are paying those fees to the lender for the loan.
- Prepaid interest follows. When you make your mortgage payment, interest is paid in arrears; for example, you actually pay January 2022’s interest in your February 1st payment. So, if you close on January 14th, you won’t have your first mortgage payment until March 1, 2022. That payment will include interest for the month of February, but it doesn’t include the interest for January 14th -31st when you actually owned your home. The debit in the prepaid interest section of the settlement statement takes care of the interest for those days in January.
- If your homeowner’s insurance policy premium isn’t paid when you secure your policy with your insurance company, you will see the fee for this at closing. You will pay one year in advance, which will be found in the debit column.
- Your escrow account prepayment will be next. Typically, your lender will pay your property taxes and your insurance premiums when those bills come due. There needs to be money in your escrow account at set-up for payment of those bills in the future. The lender is allowed by federal law to have some cushion in the account, and the closer you are to the next bill, the more they will collect at the set-up of your account. Moving forward, you are paying into that account as you pay your mortgage for future premiums and tax bills.
- Our title company’s charges appear next. First, you will see lender’s and owner’s title insurance. Lender’s insurance is required by the lender, and while owner’s title insurance is optional, it is highly recommended and extremely important for the protection of your property’s future. (Check out our previous blog concerning owner’s title insurance.) You will also see debits for the title search, settlement fees and title binders sent to the lender.
- The government’s recording and transfer charges come next. Anytime anything is recorded at the courthouse, the courthouse charges a percentage of the property price and a percentage of the loan amount.
- The last portion will be any additional charges. If you are paying for the pest inspection or your HOA would like next month’s dues paid, these charges will be added here in the debit column.
As a side note, you may find it interesting that you won’t typically see the seller at the closing table. Most sellers have an option to take care of their side prior to your actual closing date. If you are an experienced buyer, you may remember sitting with your seller previously, but times…they are a-changin’!
Finally, you will see the totals of your credit and debit columns; typically, we will subtract your credit column from your debit column, and the amount left is what you owe. If you would like a preview of what your fees might be, you can check out our “Get a Quote” option on our website to utilize our calculators. These will generate a quick estimate that could be beneficial for determining your budget.