LESSON 9: Getting To and Through Settlement

Once your purchase contract has been accepted by a seller, there are still many details to handle before your home purchase goes to settlement -- when all parties to the transaction sit down to determine whether the contract has been served and, if so, to finalize the deal. If all goes well, keys are handed over and moving trucks go into gear.

Your real estate agent will handle many of the tasks required for settlement, but you'll certainly need to be involved and making decisions along the way.

Timing Your Settlement

One prevalent myth has it that you should schedule the settlement date for late in the month in order to pay less interest. In fact, you'll pay interest starting with settlement day and ending with the day the mortgage is paid off. Thirty years is 30 years, regardless when it begins.

What appears to be a 'savings' is the amount of cash you pay at settlement for items that must be prepaid. An end-of-the-month settlement requires less cash because the prepaid items include mortgage interest due for however many days of the month remain between closing and the first of the next month. Therefore, at a January 31 settlement, you would pay only one day's interest; at a January 15 closing, you would pay 16 days interest. In the long run, however, you'll pay the same amount of interest, no matter when you close.

Mortgage Matters

If you were pre-approved for a loan, much of the mortgage application process has already been completed. Otherwise, you'll need to apply for a loan as soon as possible. Remember, your credit score is just a snapshot of your credit worthiness. We've seen many buyers adversely affect their credit scores, changing their loan eligibility just before settlement. Here's how to avoid last-minute mortgage-approval problems:

' Don't order furniture or appliances for your new home, even if no payment is immediately due.

' Don't allow stores to run a credit check for a new credit card when shopping or looking for new furniture or appliances.

' Don't apply for new credit cards, even when stores offer a discount in return for your card application.

' Pay all credit-card bills on time, even if it means paying utility bills late.

' Refuse increases in your credit limit if the increase is more than you need or is high in relation to your income.

Inspections

If you included a home-inspection contingency in your contract, you'll need to select a home inspector. Once the inspection is complete, you'll have to decide how to respond to any problems found. Depending on how the contract is written, you may opt to walk away from the deal if major problems, such as a cracked foundation, are identified. Otherwise, you should negotiate with the seller about repairing smaller problems or receiving some form of compensation at settlement.

In many states, a pest inspection is also required. Usually, it's the seller's responsibility to order and pay for this inspection. If problems are found, they must be corrected before settlement.

Appraisal and Survey

Your lender will want to verify the value of the home by sending out a professional to appraise the property. What if the appraisal comes in below the contract price?

Depending on how your contract is written, you may or may not have to make up the difference with your own cash. It may be possible to renegotiate the price with the seller. The property will also be surveyed to ensure against encroachments.

Insurance

Your lender will want you to purchase two types of policies -- homeowner's insurance and a lender's title insurance policy -- the costs of which are often paid at settlement. The homeowner's policy will protect the home and its contents against fire, theft, natural disaster, etc., up to a certain limit. You'll need to decide what type of coverage (replacement vs. actual cash value) and what amount of insurance to purchase. In some localities, flood insurance may also be required.

A lender's title insurance policy will protect the lender's investment in the event that a former owner someday establishes a legitimate ownership claim on the property. Note, however, this policy offers no protection to you, the owner. It is highly recommended that you purchase a separate title insurance policy to protect your equity in the event someone else comes forward with a legitimate ownership claim.

Walk-Through

Just before the settlement meeting (perhaps the evening before if the settlement is scheduled early in the morning), you and your agent will do a 'walk through' of the home to check its condition. During this last-minute inspection, you'll look to ensure all repairs have been made as agreed upon and that no new problems have developed. If settlement day is also occupancy day, you'll want to make certain the home is empty and clean.

Settlement Day

Assuming all goes well, you'll be relieved to sit down at the settlement table with the seller and finalize the purchase of your home. You'll have lots of paperwork to sign, which the settlement officer will explain as you go along. This is no time to be sheepish if you have any questions. Once settlement is complete, it is difficult to undo what's been signed and dated by all parties involved.

If for some reason you are unable to attend the settlement meeting, you'll need to make arrangements ahead of time, giving Power Of Attorney (POA) to someone who can sign paperwork for you. Note that if your spouse's name is to be on the deed and mortgage, he or she will need to attend settlement or give POA to you or someone else.

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