In this free legal consumer guide...
If you are buying or selling real estate in Maryland, you will most likely end up attending a settlement, or “closing”. That home you are buying or selling is likely one of your biggest assets, so we suggest taking some time to get better educated about the process. The more you know, the smoother your transaction will be!
Once the real estate contract is signed by all parties (ratified), a copy is shared with the company that will conduct the settlement. In Maryland, the buyer of a residential property has the right to select which title company will handle the settlement. The title company is responsible for making sure that “clean/clear” title to the property is passed to the new owner, as well as making sure that all terms of the contract and loan approval are followed and funds are disbursed accordingly.
A title is search is a report of public records to make sure that when the property is sold all mortgages are paid and released appropriately. This way, the title company can be sure that clear title to the property can be transferred to the new owner. The chain of title is reviewed to make sure the seller legally owns the property and that is had been properly transferred in the past. The title search will also reveal any tax liens, easements or judgments attached to the property. This search and review allows the title company to provide a policy of title insurance to both the lender and new owner.
While the odds of having a title problem are small, the loss from a title problem can be huge. If you ever need title insurance and you don’t have it, you could lose your house or a portion of your property. Title Insurance also protects you against things that can’t be found in a title search like forgery, incapacity of a prior grantor or undisclosed heirs. Title Insurance makes sure that if there ever is an issue with the title to your property, the insurance company will pay to defend the claim and compensate you for any loss that you suffer. All mortgage lenders will always require you to purchase a title insurance policy that protects them. Doesn’t it make sense to get one to protect your biggest investment?
You’ve signed the contract, done the inspections and walk thru. Now it is time to set up the settlement. While there are a lot of papers to sign, the main point of a real estate settlement is to “close the deal”. Behind the scenes, the documents are prepared pursuant to the contract and loan approval. At closing, the buyer and seller sign all documentation to complete the contract and loan, and transfer the ownership. Lastly, funds are disbursed and keys are given.
For a complete review of closing day and what you need to bring see What Happens At A Southern Maryland Real Estate Settlement.
The “Know Before You Owe” mortgage disclosure rule replaces four disclosure forms with two new ones, the Loan Estimate and the Closing Disclosure. The new forms are easier to understand and easier to use. The rule also requires that you get three business days to review your Closing Disclosure and ask questions before you close on a mortgage. This recent regulation change in consumer financing by the Consumer Finance Protection Bureau was designed to help buyers better understand their loan options, shop for the best mortgage and avoid surprises at the closing table. For more details, visit the CFPB at Know Before You Owe.
It takes more than saving a down payment to prepare for a home purchase. Once you make the decision to purchase, it’s best to start with a credit and financial review. Although the free credit report won’t be the exact set used to qualify you for a mortgage loan, it’s a great starting point in understanding your “credit worthiness” as it will be seen by mortgage lenders. Do you have any delinquent accounts? Are there any discrepancies that need to be addressed? Are your credit card balances more than 50% of the available credit?
Also, take a look at your bank accounts – Do you often transfer money? It’s important to keep good track of deposits (especially larger ones) to be sure that you can document them appropriately. Is your account in negative status often? It’s a perfect time to start controlling your spending and to make sure that your “debt to income” falls in line with the standards in the mortgage industry (40% is an average used). Debt to income ratio: The percentage of your income that is spent for household expense and credit/loan payments.
If you are in the middle of a loan process – don’t make any sudden changes to your income or credit. Try not to change jobs (if you can help it!), don’t make any large purchases and don’t miss any payments. These are things that will directly sabotage your ability to get that much needed mortgage approval and can put your purchase in jeopardy.
Legally, no you don’t need an agent to represent you. Is it a good idea to have one? Probably. If you don’t already have someone lined up to buy your property, you may benefit from the help of a Real Estate Agent. An agent has a direct link (via MRIS and other sites) to many agents and buyers. They have the ability to assist you with correctly pricing your home to sell and are trained to understand the market in your area. Yes, it will cost you more because you’ll need to pay their commission (as well as the commission for the buyer’s agent) but they will usually help you set the pricing to compensate for this cost.
If you already have a buyer (without an agent), you can probably save yourself the commissions fee and look to an attorney’s office to draft and manage a contract of sale for you and your buyer. That office will be the closing and title agent as well. The attorney will use a contract that is similar to the one used by the real estate agents and will make sure that both parties are well represented in the contract. They will not be able to represent one party or the other, but will remain a neutral party in the transaction.