QUESTION: I have just finished signing a contract to purchase my first home. I have met with a lender and have also had the house inspected. The agent has now suggested that I arrange for a title company to handle settlement. Please explain to me the various responsibilities of the title company, as well as what I can expect to occur in the next few weeks prior to settlement.
ANSWER: The agent is correct in suggesting that you select a title company as soon as possible. There are many important matters which must be tended to prior to settlement. You have the right to select any title company of your choice. Once you have made your selection, you should advise the agent of your choice, as the contract will then be forwarded to Village Settlements.
The first step Village Settlements will undertake is to order a title report or title abstract. This report will show the title attorney with Village Settlements a sixty (60) year history of the property. The abstract will also reveal whether any outstanding lawsuits, judgments, or liens exist and will state whether any easements, rights-of-way, covenants, or restrictions affect the property. If you would like to review any of the documents filed in the Land Records, please contact one of our attorneys. For a nominal charge, we can obtain full copies of all easements, rights of way, etc., and deliver those to you prior to settlement. Unlike many companies, at Village Settlements one of our attorneys will review and sign off on the title abstract and the survey.
Village Settlements will also order a house location survey if you so request. This survey will reveal whether any fences encroach upon the neighbor’s property or vice versa, and whether the house and other structures are within the property lines. The survey will also reveal if any portion of the house or other structures have been built over any building restriction lines. Unless you specifically request, in writing, the surveyor will not place iron stakes in the corners. The surveyor will identify, in most cases, when an existing stake has been found. If you wish to obtain a survey where the iron pipes are placed in each corner, you will have to pay an additional fee for this service. In either case, under Maryland regulations, you will be required to sign a form electing either a house location survey or a stake survey. The surveyor cannot commence work on either type of survey until you sign this form. At Village Settlements, we will contact you as soon as we receive your contract/title order and will make arrangements to get the survey request form to you.
Next, Village Settlements will also prepare the title insurance binder and title insurance policy. The protection afforded under a title insurance policy is discussed on this website. The policy is designed to protect both you (if you elect to purchase a policy) and the lender, who will require you to purchase a policy on its behalf, against any outstanding title defects which are not otherwise excepted from the policy. The title insurance premium which you pay at closing is a one-time charge and will protect you for as long as you own the property.
After reviewing the title report and survey and preparing the title insurance binder, Village Settlements will forward this information to your lender in advance of settlement. Your lender will then review the entire package as part of the overall loan approval process. As the settlement date nears, Village Settlements, and the lender will be in close contact, making arrangements to deliver your loan papers to our office. These papers will be carefully reviewed by the attorney with Village Settlements in order to determine that they are in proper form.
In October of 2015, the real estate settlement industry saw a major change in the loan disclosure laws and the settlement documents to be signed. Under the prior Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), lenders were required to deliver to the borrower a Truth in Lending document which presumably helped the borrower to understand the true cost of their loan. Also, settlement attorneys prepared a HUD-1 Settlement Statement which outlined all of the costs and expenses of the settlement. Under the new law, the Consumer Financial Protection Bureau was directed to integrate the mortgage loan disclosures under TILA and RESPA. And thus, TILA-RESPA Integrated Disclosure (TRID) was born.
Many of the terms that the Lender will use have changed with the new TRID laws. The key terms that have change are as follows:
Lender = Creditor
Borrower = Consumer
Settlement Date = Date of Consummation, which is the date when you become liable on the loan
Truth in Lending and Good Faith Estimate = Loan Estimate
HUD-1 Settlement Statement and Final Truth in Lending = Closing Disclosure
You should expect that these old and new terms will be used interchangeably.
The two major changes that will affect your transaction are the Lender requirements for the new Loan Estimate (LE) and the preparation of the Closing Disclosure. The Loan Estimate is prepared by your Lender and the Lender must provide the LE to you within three business days of the receipt of your loan application.
The Closing Disclosure (CD) is now the first significant settlement document that you will see before settlement. The CD sets forth all of the costs and expenses of settlement as well as the adjustments between the buyers and sellers. Under TRID, the Lender is required to deliver the CD to you three business days before settlement. The timing and method of the delivery by your Lender is critical. In some cases, the Lender will hand deliver the CD to you or you may receive it via e-mail. However, you may also receive the CD via regular United States mail. Depending upon how the CD is delivered to you, you will receive the CD anywhere from three to seven days in advance of settlement.
At settlement, we will review the CD and all of the loan documents. The Seller will also sign the Deed, which will transfer legal title to you. In addition, settlement is often a time for final discussions regarding the operation of various items in the house, as well as the delivery of the keys.
Throughout the settlement process, Village Settlements will be available to answer any questions you may have regarding your loan documents, the contract, and any addenda which you must sign, as well as any other matters regarding your settlement. In fact, at Village Settlements, one of our attorneys will be available, free of charge, to review and discuss all settlement documents which you must sign.
After settlement, it is the responsibility of Village Settlements to disburse all of the funds to the various parties. The Seller’s loan will be paid off, and the Seller will receive the proceeds check. Several weeks after settlement, the Seller will receive a refund of any funds being held in escrow by the current lender.
Village Settlements, will also be responsible for recording the Deed and your loan documents at the courthouse. Approximately four to eight weeks after settlement, you will receive the Deed and, if purchased, your owner’s title insurance policy. Although you may not receive the Deed for many weeks, you will be the owner of the property.
In preparing for settlement, you should discuss with the real estate agent and loan officer certain items which will be necessary for settlement. For example, your lender will require you to deliver evidence that you have purchased a hazard insurance policy on the house and have paid the first year’s premium in advance. Additionally, it may be necessary to provide the lender with a copy of the termite inspection report and well and/or septic reports. Your lender may also need some final documentation in order to complete your loan package. You should stay in constant contact with your loan officer in order to ensure that all documentation is provided to the lender in a timely manner.
Also, you will want to contact the various utility companies involved to transfer the accounts into your name. At settlement, Village Settlements may hold a small portion of the Seller’s proceeds in escrow to pay the final water bill. However, all other final utility bills must be paid by the Seller.
Finally, you should be prepared to bring a picture identification, such as a driver’s license. Also, you should wire your closing funds to Village Settlements or bring a certified or cashier’s check, payable to Village Settlements, to closing. Always contact our office to verbally confirm any wire instructions that you have received, as the title industry is one industry that fraudsters have targeted. The amount that you will need to bring will be set forth on the Closing Disclosure in the box labeled “Cash to Close.” The most important thing for you to remember is that you are working with a real estate agent, loan officer, and title attorney who have handled many transactions. Therefore, if you have any questions regarding any phase of the process, you should not hesitate to contact any of us.
Appraisal Fee — Cost of independent evaluation of the value of the property. (Generally $250-$500).
Closing Disclosure — The document which sets forth all of the expenses for the Buyer and the Seller.
Consumer — Another name for the Borrower. As the purchaser, if you take out a loan, you are the consumer.
County Transfer Tax — Charge to transfer title to real property. To calculate the tax in your County, please use our Fee Calculator on this website.
Consummation — Another term for the settlement or closing.
Credit Report Fee — Charge by lender for research to verify personal financial status. (Generally $50-$125).
Deed — The legal document which transfers ownership of real property. Recording the deed in the land records is notice to the world as to ownership of the property. The title may be issued solely to the purchaser or with another individual(s) by (1) Tenancy in Common, (2) Joint Tenancy, or (3) Tenancy by the Entirety. For a more detailed discussion of the methods of taking title, see the discussion on our website labeled “Taking Title to Real Property.
Deed of Trust or Mortgage — The document which pledges the real property as security for repayment of the amount of money borrowed. It is recorded in the land records to put everyone on notice that the property is security for the debt.
Deposit — An amount of money paid with the initial contract offer and held by the broker or title company until settlement.
Escrow — Sum of money held by the lender to be applied toward payment of future taxes and/or insurance. May also be sum of money set aside at settlement to ensure completion of repairs.
Hazard Insurance — Insurance which protects borrower and lender against fire and other natural hazards. Sometimes this is called Homeowner’s Insurance
Interest Adjustment — Unlike rent, which is generally paid in advance, interest on mortgage loans is paid after it is earned. The one exception occurs at settlement. Lenders collect interest from the date of settlement until the end of the month in which settlement occurs. This allows subsequent mortgage payments to fall due on the first day of the month.
Loan Estimate — The lender’s estimated summary of your settlement charges. You will receive this within 3 days of loan application.
Lender — The company that gives you the loan. Also called the “creditor.”
Loan Origination Fee or Origination Charges — Lender’s fee for administration and processing of a loan. A “point” is equal to 1% of the loan amount. This fee will appear on the Closing Disclosure as part of the Origination Charges.
Mortgage Insurance — Insurance which protects the lender against loss if the borrower defaults on the loan and the property is foreclosed upon.
Promissory Note — The written promise by the borrower to pay the amount of money borrowed from the bank, seller, or other lender.
Property Tax Adjustment — Reimbursement to the seller for taxes prepaid by seller from the date of settlement through the end of the tax year. (June 30 of each year).
Recording Fees — Fees paid to the Clerk of the Court for recording the documents among the County land records. Recording of a Deed costs approximately $60.00 and recording a Deed of Trust or Mortgage costs approximately $60.00.
Settlement/Closing Fee - To determine the Settlement Fee for your transaction, please use our Fee Calculator on this website.
State Revenue Stamps — Tax on recording of a document of title or security, such as a Deed of Trust. To calculate the Stamps in your County, please use our Fee Calculator on this website.
State Transfer Tax — Charge of 1/2% of the sales price of property in all Maryland counties to transfer title to real property. If the buyer is a First-Time Maryland Home Buyer, the tax is reduced to 1/4% and must be paid by the seller.
Title Abstract — Report of the land, lien and judgment records to ascertain ownership and status of title to real property. Cost is approximately $200-$275 per search.
Title Examination — At Village Settlements, an attorney will carefully review every title abstract and survey. The fee for this service is included in the Settlement Fee.
Title Insurance — Insurance which protects against defects in the title such as forged deeds, missing heirs, outstanding liens or mortgages. It is a one-time premium, and the insurance coverage is in effect for as long as you own the property. Lenders usually require that buyers pay for a policy of title insurance to insure the amount of the loan. Title insurance to protect the purchaser in the amount of the sales price is optional and it purchased in the overwhelming majority of settlements. For more details on why you need title insurance, please click that section in our Quick Links.
TRID — A short term name for the new loan disclosure laws. It stands for Truth-In-Lending, Real Estate Settlement Procedures Act Integrated Disclosures.
QUESTION: Why do I have to sign so many forms, documents, disclosures and other papers?
ANSWER: As you begin the search for a new home, you may have questions about the many forms and documents which the real estate agent asks you to sign. Many new home purchasers are concerned that they must review and sign so many forms, even before the search for a house begins. Generally, the purpose of these initial forms is to help you understand the transaction. Most of the forms are required under Maryland law. After you carefully read the forms, you will see that the information disclosed in the documents will help you to become better informed about your real estate transaction.
1. Understanding Who Real Estate Agents Represent — This form was designed to help buyers and sellers understand who the real estate agents represent. As you review the form, you will see that there are agents who represent either the buyer or the seller, and in some limited situations, both the buyer and the seller. When you sign this form, you are simply acknowledging receipt of the disclosure. You are not signing a contract obligating you to purchase a house. The sole purpose of the form is to let you understand the different types of agency relationships, as well as who the specific real estate agent you are speaking with is representing.
2. Consent for Dual Agency — The real estate agent may ask you to sign this form. Dual agency can occur when you are interested in a property which is listed by a certain real estate company, and your buyer’s agent also works for the company which is listing the property. If the buyer’s agent and seller’s agent both work for the same company, then a potential conflict of interest may exist. Under Maryland law, as long as all parties to the transaction understand and consent to the fact that the buyer’s agent and seller’s agent both work for the same company, then the transaction may proceed. You are not required to consent to a dual agency. If you do not consent in writing to a dual agency, then no such relationship will exist. A dual agent must keep all information confidential regarding your negotiating position or desire to purchase a given property. A dual agent must also disclose all material facts about the property to the other party. However, a dual agent does not exclusively represent the buyer or seller.
3. Exclusive Retainer Agreement — If you elect to hire the real estate agent to exclusively represent you as a “buyer’s agent,” then, prior to writing a contract offer, Maryland law requires that you and the agent must enter into a written agency relationship or retainer agreement. This agreement does not require that you buy a specific house. Instead, it will establish the buyer’s and the agent’s respective rights and responsibilities to each other.
4. RESPA Disclosure — Federal and state laws require that certain brokers must make disclosures to you regarding their business relationships. Specifically, certain brokers may have an ownership interest or affiliation with a mortgage lender, Settlement Company, homeowners insurance company or other related businesses. If such a relationship exists, the law requires that this information be disclosed. The broker/agency is also required to disclose to you the approximate costs for services. You should understand that the disclosure is designed to inform you of the business relationships. You are also free to choose a different service provider if you so desire.
5. Some Information Relative to the Purchase of Real Estate — The agent may ask you to sign this form which provides general information regarding the purchase of real estate. This form is not a contract to purchase a house. It is designed to help you understand some of the various rights and options which you may have. For example, disclosures are made regarding financing, property condition, hazardous materials, equal housing opportunity and information regarding the location of airports. This form is extremely valuable in that it neatly and concisely summarizes some of the most important information regarding real estate transactions.
6. Property Condition Disclosure Statement or Disclaimer Statement — Under Maryland law, the purchaser is entitled to receive from the seller a written Residential Property Condition Disclosure Statement or a written Residential Property Disclaimer Statement. This form is designed to help you understand the condition of the property before signing a contract. It is possible that when you first visit a house, this form will be delivered to you for your review and signature. This form is not a contract to buy, nor does it obligate you in any way to purchase the house. It is designed to help you become better informed about the condition of the property.
7. Lead Paint Hazard Notification — Federal and State legislation requires the disclosure of certain information regarding lead paint and lead poisoning. The agent may ask you to sign a form acknowledging that you have received and read a copy of the notice regarding the dangers of lead paint. Again, this form does not mean that lead paint necessarily exists in the house, nor does this form obligate you to purchase the property.
8. Government Regulations, Easements, and Assessments Disclosure and Addendum (REA) — This document is required for all listing agreements and sales contracts in Montgomery County. It was created by the Greater Capital Area Association of REALTORS and requires that the Seller give additional disclosures such as whether the property is located in a Special Protection Area, the existence of well/septic, smoke detectors, historic preservation, front foot benefit charges, private utility assessments, development districts, special tax districts, transportation assessments, forest conservation easements, and airports and heliports.
As you can see, most of the above forms are mandatory disclosures and are designed to help you become a more knowledgeable purchaser. None of the forms obligate you to purchase property. If the real estate agent asks you to review and sign the forms, you should carefully read each form before signing them. However, if you still have questions regarding these mandatory disclosures, please feel free to call any of the attorneys at Village Settlements. If you have questions or concerns regarding any of the documents which you are asked to sign, please feel free to contact our office for your free contract and/or document review.
QUESTION: It seems as though there will be a lot of documents for me to sign. I understand that all of the documents are important. However, are there any specific documents to which I should pay special attention?
ANSWER: There are, in fact, many documents which you will sign at settlement. Many are self-explanatory, such as declarations that you intend on occupying the property, that you have not given any false statements to the lender, or that your correct mailing address will be the property address. You should understand each of these documents before signing them. One of the most important documents you will review and sign is the Closing Disclosure (CD). This document sets forth all of the costs and expenses of settlement, as well as the adjustments between the Buyer and Seller.
You will also sign a Promissory Note, which is your promise to repay the lender. You should review your Note in order to determine that the interest rate, loan amount, and term of the loan are correct. Additionally, the Note should state whether there exists a penalty for prepayment and that the late charge should not exceed five percent (5%) of your overdue payment of principal and interest. Finally, the Note may state that the loan is not assumable. This means that if you sell or transfer any interest in the property, the new purchaser will not be allowed to take over the payments on your loan. Instead, the Buyers will be required to obtain their own loan.
Another document which you will sign is the Deed of Trust. This is the document in which you pledge the house as collateral for repayment of the loan. In the event that you fail to make the payments and the lender properly notifies you of this default, then the lender will be authorized to have the house sold at public auction or foreclosure.
The settlement attorney will review these documents to determine that they are properly drafted and will explain them to you at settlement. You will also have the opportunity to review them at settlement. After you have reviewed these documents at settlement, you will sign the loan papers and receive copies by e-mail following closing. You should always keep a separate file on your computer for your settlement papers.
QUESTION: My husband and I are about to purchase a house. We are concerned about what would happen to the house if one of us dies. Is there a certain way to take title to the property in order to protect our interests? Also, are there different types of Deeds which we should know about?
ANSWER: There are several ways to take title to property. When more than one person takes title to property, this is known as a “concurrent ownership interest.” Each co-owner has an ownership interest in the entire (or whole parcel of) property. The three forms of concurrent ownership are Joint Tenants, Tenants in Common, and Tenants by the Entirety.
1. Joint Tenants
A Joint Tenancy exists whenever two or more persons own an entire, undivided interest in a particular piece of property. The distinguishing characteristic of a Joint Tenancy is the right of survivorship. Upon the death of one of the Joint Tenants, the surviving Joint Tenant continues to retain an undivided ownership interest in the property. If there is more than one surviving Joint Tenant, the remaining Joint Tenants continue as co-owners of the property until there is only one last survivor. The last survivor then has sole ownership in the entire property. The law will not imply a Joint Tenancy. In fact, when the intent to create a Joint Tenancy is not clearly expressed, the courts in Maryland may hold that the conveyance created is a Tenancy in Common (see discussion below). Therefore, for the purchasers of property wishing to obtain title to property with the above mentioned rights, it is suggested that the purchasers expressly state that they wish to obtain title as “Joint Tenants with the Right of Survivorship,” and such words must be set forth in the Deed.
Generally, a Joint Tenant may sever his or her undivided ownership in the property by conveying that interest to a third party. Thereafter, the new owner holds title to the property as a Tenant in Common with the remaining Joint Tenants. This means that the new owner has no right of survivorship. For example, if A, B and C own title as Joint Tenants with the Right of Survivorship, and A conveys his interest to X, the Joint Tenancy is severed. Thereafter, B and C still hold an undivided one-third interest each as Joint Tenants with the Right of Survivorship. X will own an undivided one-third interest as a Tenant in Common with B and C. If B dies, C then owns two-thirds of the property as a Tenant in Common with X, and X still owns a one-third interest.
2. Tenants in Common
The key distinguishing factor between a Tenancy in Common and Joint Tenants with Right of Survivorship is that a Tenancy in Common is concurrent ownership with no right of survivorship. Each individual owner has a distinct, proportionate, undivided interest in the property, which is freely transferable by inheritance and is subject to the claims of the creditors of the particular owners. Tenants in Common do not necessarily need to own equal undivided interests in the property. Although each owner is entitled to possession of the whole property, Tenants in Common may acquire their interests at different times by different instruments and may have undivided interests. Unless otherwise stated, however, each Tenant in Common is presumed to take an equal share in the property. For example, A and B own a parcel of property as Tenants in Common. A has an undivided forty percent (40%) ownership interest, and B has an undivided sixty percent (60%) ownership interest. A still has the right to possess and enjoy the property in a manner equal to that of B, so long as the concurrent ownership lasts. However, either concurrent owner may, at any time, and without the consent of the other, freely sell, assign, or convey his ownership interest.
3. Tenants by the Entirety
Ownership as Tenants by the Entirety is similar to a Joint Tenancy with Right of Survivorship, subject to three significant differences. First, Tenants by the Entirety must be married. Second, neither spouse can sever his or her ownership interest in the property without the consent of the other. In other words, an attempted conveyance to a third party by one spouse alone will not eliminate the right of survivorship, as such conveyance would be invalid. This means that one spouse cannot sell or mortgage any part of the property without the consent of the other spouse. Finally, with the exception of certain Federal tax liens, the ownership interest of one Tenant by the Entirety cannot be reached by the other spouse’s individual creditors.
The only ways to terminate the co-ownership interest of Tenants by the Entirety are by the death of either spouse, divorce (in which case the parties become owners as Tenants in Common), or mutual agreement.
Regarding your second question, there are three basic types of Deeds conveying property.
1. Special Warranty Deed
With a Special Warranty Deed, the grantor warrants that he did nothing personally during his ownership of the property which would create a defect in the title to the property. This is the type of Deed used most often in Maryland. Because the warranty is limited in time, the need for title insurance becomes more significant in Maryland, where special warranty deeds are the norm.
2. General Warranty Deed
The grantor, giving a General Warranty Deed, warrants that the title is free of any defects, either prior to his ownership of the property or arising out of his ownership in the property. The grantor warrants to the purchaser that the title to the property is good from the beginning of time until the purchaser takes title.
3. Quitclaim Deed
A quitclaim deed transfers to the purchaser any title which the seller/grantor has. This Deed gives no assurances (no covenants or warranties) that the title is good. The seller is merely giving to the purchaser whatever title the seller has, if any. This type of Deed is usually used to cure a title defect or convey title when the grantor is unsure as to the validity of title.
QUESTION: We have just placed our house, which is nearly 30 years old, on the market for sale. We are concerned whether we will be responsible for any defects in the property or whether we will be liable for any damages which the purchaser might discover after settlement. Are we required to give the purchaser any guarantee or warranty? Under what circumstances might we be liable for any damages in the property?
ANSWER: In Maryland, it is a generally accepted principle that there are no implied warranties in the resale of a previously owned residence. In other words, if the contract does not state that the seller specifically warrants or guarantees the condition of the property, then no such warranty will be implied. However, the seller cannot hide or conceal known defects, especially those which affect the health and safety of the purchaser. New construction requires the issuance of a warranty in accordance with Maryland law. Most standard contracts, subject to certain exceptions, indicate that the property is sold “as is.”
The above principles should not be interpreted to require the seller to report to the purchaser every known minor repair or defect which may have occurred in the history of the house. Such a requirement would be unreasonably burdensome on the seller, and Maryland law would not create such an obligation. However, Maryland has enacted a mandatory property condition disclosure law. The real estate agent can assist the buyer and seller with the required disclosure forms.
Some standard contracts contain certain express warranties. For example, in the Property Condition paragraph of the Maryland Contract, the seller warrants that the property will be in substantially the same physical condition as of the date of contract acceptance. Therefore, if the hot water heater breaks one week after final ratification of the contract, but prior to settlement, then the seller must repair or replace the hot water heater. Additionally, in some contracts the seller generally certifies that the electrical, plumbing, heating, air conditioning, appliances and other mechanical systems will be in working condition at the time of settlement. These items may not be in brand new, perfect condition, but they must be in general operating condition. This provision, however, does not mean that the seller will warrant or guarantee the condition of these items after settlement. However, the Maryland contract usually states that the property is sold “as is.”
Regardless of whether or not the seller elects to provide the purchaser with a separate commercial warranty protection plan or make any express warranties in the contract of sale, sellers should be very careful to repair or replace any known defects or adequately disclose those defects to the purchaser prior to entering into the contract. If a house contains any severe defects of which the seller has knowledge, they will be better served by having those items repaired prior to entering into a contract, rather than being sued by a disgruntled purchaser after settlement.
QUESTION: I am considering refinancing my current loan. I have been reading that interest rates have dropped from the rate of my current loan, and I think that I can reduce my monthly payments by several hundred dollars. However, I am concerned that there may be many fees involved in refinancing. Is there any specific formula for calculating whether a refinance will be worth the expense? Also, what expenses should I expect?
ANSWER: As interest rates drop below your present rate, you should certainly consider refinancing your existing loan. There are many theories as to when a refinance is appropriate. The old rule was that you should reduce your current interest rate by two (2) percentage points. In addition, within approximately twenty-four (24) months from the date of your refinance settlement, the older theory was that you should have saved enough money from the reduced mortgage payments to cover all of your settlement costs. In other words, if your total settlement costs are Two Thousand Four Hundred Dollars ($2,400.00) and you are able to reduce your payments by Two Hundred Dollars ($200.00) per month, you would have made back all of your expenses in twelve (12) months. However, you should understand that these are somewhat outdated general rules and may not necessarily apply in your case. In fact, you may be interested in solely reducing your monthly payment or converting an adjustable rate loan to a fixed rate loan. Therefore, you should not worry about any specific rules but should, instead, do what best fits your financial situation.
Regarding the settlement costs, you will find that most of the expenses incurred at settlement are similar to those at a regular purchase settlement. There are some ways to save on the settlement costs and these are discussed below.
Under the new title insurance rules, you no longer need to present a copy of your Owner’s Title Insurance Policy in order to obtain the discounted Re-issue Rate for a refinance. Instead, the Refinance Rate will be utilized. Sample rates can be found on the Fee Calculator elsewhere on this website.
Regarding transfer taxes, most jurisdictions in Maryland do not require you to pay new transfer taxes at the time of your refinance settlement. However, in most jurisdictions, you must pay the State Revenue Stamps (this amount varies by county) on the new money being borrowed. In other words, you will only be responsible for paying revenue stamps on the difference between the outstanding principal balance of your existing loan and the principal balance of your new loan. Thus, if you owe Ninety-Five Thousand Dollars ($95,000.00) on your current loan and you are borrowing One Hundred Thousand Dollars ($100,000.00) on your new refinance loan, you would only pay State Revenue Stamps on the Five Thousand Dollar ($5,000.00) difference.
Since you will not be required to pay the transfer taxes on a refinance and you should be able to save money with the above-described cost saving tips, you will find that the overall expense for a refinance will be less than for a regular purchase settlement. Regarding the settlement procedures, it is important that you follow your lender’s instructions carefully because you may be required to obtain certain documentation in advance of settlement, such as proof of a homeowner’s insurance policy. You will also want to verify with your new lender whether they will require you to pay money in escrow for taxes and insurance. While it is likely that you will have to place money in escrow with your new lender for taxes and insurance, the funds which you have been paying to your prior lender for taxes and insurance will be refunded to you within two (2) to four (4) weeks after the payoff of your existing loan. Therefore, when calculating your settlement costs, you should take into consideration the fact that you will be receiving a refund of your escrow account.
Finally, if you are paying off an older FHA loan, you should check with your existing lender to determine whether any notification rules or pre-payment penalties apply. Generally, you must give your prior FHA lender written notice of your intention to pay off the loan.
Your decision to refinance should be based on many factors, including the reduced monthly payments, the term of the loan, the interest rate, and the overall expense of settlement. However, in most cases, you will find that the benefit of receiving the lower interest rate or monthly payment will far exceed the initial outlay of settlement costs.