<?xml version="1.0" encoding="UTF-8" ?>
<rss version="2.0" xmlns:atom="http://www.w3.org/2005/Atom">
    <channel>
        <atom:link href="https://www.seaportre.com/blog/2017-01/rss/" rel="self" type="application/rss+xml" />
        <title>Seaport Advisory</title>
        <link>https://www.seaportre.com/blog/2017-01/</link>
        <description>Data-driven real estate insights, valuation, and strategy across Southeastern CT and Southern RI. Research-backed guidance for buyers, sellers, and investors.</description>
<item>
    <guid>https://www.seaportre.com/blog/what-exactly-are-closing-costs-and-prepaid-expenses-part-3.html</guid>
    <link>https://www.seaportre.com/blog/what-exactly-are-closing-costs-and-prepaid-expenses-part-3.html</link>
        <title>What Exactly Are Closing Costs and Prepaid Expenses? (Part 3)</title>
    <description> <![CDATA[ 




Written by Robert H. Ruth


Over the past 2 weeks I have tried to provide an in depth explanation of what closing costs and prepaid expenses are, and what they typically cost for a $375,000 purchase with 20 down payment and a mortgage loan of $300,000.


In this final installment, I want to tie closing costs and prepaid expenses together and show you the total amount of money our hypothetical borrower would need to bring to the closing table. This is a breakdown of what this transaction would look like for our borrowers:










Sales Price






$ 375,000.00








Closing Costs






       4,219.00








Prepaid Escrow Expenses






       3,723.95








Total Acquisition Cost






$  382,942.95








Less Loan Amount






$ (300,000.00)








Cash required for purchase






$    82,942.95










Remember, the closing costs are the charges required to transfer the property from the seller to the buyer, and secure the mortgage financing. They include the fees for the appraisal, credit report, survey and recording the deed. They also include the fees for the attorney to search the title and close the loan. In addition is the cost for lenders and owners title insurance.  Let me explain these in a bit more detail.


Title Search :


When you buy a property and get a mortgage, the bank wants to make sure there are no liens outstanding against the property. The attorney or a title company goes to the Town Hall where the deed is recorded and searches the land evidence records for the history of the property. The title search may go back 50-75 years, and the title researcher is looking to make certain that any lien , or mortgage recorded against the property was paid off and released properly, that there are no outstanding mechanics liens for work done on the property, or tax liens still recorded against the property. They are also looking to make sure that any building permit issued for improvements to the property was issued and closed when the work was finished. They also may see that a previous owner of the house died and they want to make sure there are no estate taxes still outstanding on the property. If nothing negative is found the property is considered free and clear of liens and encumbrances and would be eligible to close.


Title Insurance:


Insures against financial loss from any defects in the title to real property; it also defends against a lawsuit attacking the title. The policy can also reimburse the insured for actual monetary loss incurred up to the dollar amount of the insurance provided in the policy.  There are two types of title insurance, lender’s coverage and owner’s coverage.






Lender’s Title Insurance, also known as a loan policy, is mandatory on most loans. This insurance covers the mortgage loan amount and is issued to the mortgage lender.  The buyer pays for this as a closing cost.






Owner’s Title Insurance, is an optional closing expense, but an important form of insurance for a home buyer. The owner’s policy gives the owner assurance that the title to the property is vested in the purchaser and that the title is free from all defects, liens and encumbrances, except those listed as exceptions or excluded from the policy. It also provides coverage for loss if there is no right of access to the land. So, in the future, if another party claims that they have an ownership interest in your property, and you end up losing the property, the owner’s policy should cover your equity in the property.






This concludes my explanation of Settlement Charges (closing costs and prepaid expenses) you must pay when buying a house.  Feel free to contact me with any questions you may have regarding these items.  Remember, buying a home is the most important financial decision of your lifetime, and as a consumer you have the right to know everything about the transaction.  


 




Robert H. Ruth


Senior Mortgage Banker


Direct: 401.789.4441


Mobile: 401.743.4364Email: rhr11@icloud.com


NMLS ID: 513243








 
  ]]> </description>
    <pubDate>Mon, 23 Jan 2017 16:14:00 -0500</pubDate>
</item>
<item>
    <guid>https://www.seaportre.com/blog/what-exactly-are-closing-costs-and-prepaid-expenses-part-21.html</guid>
    <link>https://www.seaportre.com/blog/what-exactly-are-closing-costs-and-prepaid-expenses-part-21.html</link>
        <title>What Exactly Are Closing Costs and Prepaid Expenses? (Part 2) </title>
    <description> <![CDATA[ 





Written by Robert H. Ruth


Last week I began by breaking down the typical settlement charges known as closing costs, and offered an explanation of what these charges actually cost and what services are obtained or performed for each individual item.  As a brief recap, closing costs are the expenses incurred by a home buyer to transfer the title of the property from the seller to the buyer and secure the mortgage financing on the property.


However, closing costs are not the entire story. There are other settlement expenses which serve a different purpose, and they are known as prepaid escrow items. In this article we will look at prepaid expenses in detail, why they are collected and how they are used in your mortgage.


Before I start, it will be helpful to understand how rent payments differ from mortgage payments.






When you rent, you are paying the owner of the property for the use of their property, and the rent payment is typically due on the 1st of the month, for the current month.






Therefore, rent payments are paid in advance.






Mortgage payments work in a completely opposite direction.






The mortgage payment, like rent, is due on the 1st of the month, but when you make the mortgage payment you are actually paying interest on the money you borrowed the previous month.  






Therefore mortgage payments differ from rent in that you are not paying in advance every month, you are paying backwards towards the previous month.






At the closing table, we also establish escrow accounts to fund future payments for expenses associated with owning a home such as taxes and homeowner’s insurance. The chart below is a fair representation of what these escrow items might cost.


For this example, we will determine the typical Prepaid Expenses to be collected at closing on a $375,000 purchase in Southeastern CT or Coastal RI with 20 down and a $300,000 Mortgage Loan at 4.25. We will also assume the closing is taking place on the 15th of the month.



Prepaid Escrow Itemization           Cost                         Explanation











Per Diem Interest






$  523.95






Interest for the current month due at closing @ 34.93/day x 15 days








1st Yr. Homeowner’s Insurance






 1200.00






1st year premium paid to insurance company prior to closing








Escrow 3 mos. ins. @ $ 100






   300.00






3 mos. reserves to establish escrow account for insurance renewal








Escrow 4 mos. taxes $ 425






 1700.00






4 mos. reserves to establish escrow account to pay taxes when due










Total Escrow Expenses            $ 3723.95


These costs might seem high at first glance; however there can be wide variability in these numbers. For example, the first year of homeowners is not paid to the lending institution, but to the insurance company chosen by the borrowers. We show the estimate in the prepaid section because the insurance must be paid prior to closing, and the borrowers must give proof of insurance being in place to the lender in order to close. Also, the amount of money needed to escrow taxes could be different (higher or lower). If a borrower has 20 down they can choose to not escrow taxes and insurance so that would eliminate the escrow requirements completely. This is simply a worksheet detailing what these costs might be to help inform you of what these costs are and how much they might cost.


Next week, in our last installment of this series, we will tie all this together and give a more detailed explanation for legal fees, title insurance and escrows.




Robert H. Ruth


Senior Mortgage Banker


Direct: 401.789.4441


Mobile: 401.743.4364Email: rhr11@icloud.com


NMLS ID: 513243






 
  ]]> </description>
    <pubDate>Wed, 11 Jan 2017 16:11:00 -0500</pubDate>
</item>
<item>
    <guid>https://www.seaportre.com/blog/what-exactly-are-closing-costs-and-prepaid-expenses1.html</guid>
    <link>https://www.seaportre.com/blog/what-exactly-are-closing-costs-and-prepaid-expenses1.html</link>
        <title>What Exactly Are Closing Costs and Prepaid Expenses? </title>
    <description> <![CDATA[ 





Written by Robert H. Ruth


This is one of the biggest questions I answer on a routine basis, and with good reason. Every borrower who is looking to finance the purchase of a home needs to know the answer to this question, and so, this will be a 3 part explanation of what closing costs are and how they work into a loan purchase transaction.


When you purchase a home and take out a mortgage to finance it there are certain expenses incurred by the buyer with the purchase and closing, known in the industry as Settlement Charges. There are two components of Loan Settlement Charges:






Closing Costs, which are the charges required to transfer the title of the property from the seller to the buyer, and secure the mortgage financing on the property.  






Prepaid Escrow Items which are the costs associated with setting up escrow accounts for taxes and insurance and a charge for pro-rated interest for the remainder of the month in which you close







In this article we will look at the typical Closing Costs in Southeastern CT and Coastal RI for a $375,000 purchase with 20 down payment and a $ 300,000 Mortgage loan.


Closing Cost Itemization      |      Cost      |      Explanation










Origination Fee






$  895.00






The fee charged by a bank or mortgage company to do your loan (can vary)








Appraisal Fee






   425.00






Covers the expense for the appraisal on a single family home








Flood Certification






     11.00






Determines whether the house is in a flood zone








Credit Report Fee






     24.00






Charge to obtain your credit report








Tax Service Fee






     74.00






Fee to set up and maintain your escrow account








Attorney’s Fees






   875.00






Charge for the closing ($575) and title search ($300)








Lender’s Title Insurance






 1000.00






Insurance to protect the lender’s interest in the property








Owner’s Title Insurance






   450.00  






Optional insurance to protect your interest in the property








Survey Fee






   150.00






Covers the cost of a survey description of the property








Recording Fee






   265.00






Fee charged by the town to record the deed in the land evidence records








3rd Party Courier Fee






     50.00






Fee to cover costs for sending original signed documents back to the lender










Total Closing Costs                 $ 4219.00


So you can see that the closing costs are not a small amount of money. In this example, if we divide the closing costs into the mortgage loan amount they are equal to 1.4 of the loan amount.  Most of these costs are pretty much either expenses a consumer cannot shop for (appraisal, flood certification. credit report, tax service fee), or services a consumer can shop for ( survey fee, Attorney’s Fees, and Lender’s Title Insurance). The distinction between the two is important: the fees consumers typically cannot shop for are usually set by the lender in the specific market place the consumer is purchasing in. Stated differently, you have little say over the fee you will pay for the appraisal , flood certification, credit report or tax service fee. You have the ability to shop for fees connected with the survey, attorney’s fees for closing and title search, and the Lender’s Title Insurance Fees.



Next week, I will cover Prepaid Escrow Expenses and how they impact total settlement charges.


Robert H. Ruth


Senior Mortgage Banker


Direct: 401.789.4441


Mobile: 401.743.4364Email: rhr11@icloud.com


NMLS ID: 513243




 
  ]]> </description>
    <pubDate>Wed, 04 Jan 2017 16:10:00 -0500</pubDate>
</item>
    </channel>
</rss>