Why is "Settlement" So Unsettling?

Settlement procedures are probably the most complicated and confusing aspect of buying a new home. The buyer is handed a seemingly endless stream of legal documents to read and sign. But with the excitement of buying a new home, buyers may have trouble focusing on the meaning and importance of these papers.

While you might not understand all the details of all the documents, a general idea of what you are signing and why is important. Begin by asking your lender for a pamphlet explaining "Settlement Costs". Under the Real Estate Settlement Procedures Act (RESPA), lenders are required to provide loan applicants with this pamphlet within three business days of an application.

RESPA also requires lenders to provide a good faith estimate of the settlement costs within three business days of your application. These costs generally run between three and six percent of the price of the house, depending on the taxes in your area and various other factors. Shortly before settlement day, you will be told how much you owe so that you can have a bank check prepared. A personal check is not generally accepted.

The types of costs fall into three main categories:

• Charges for Establishing and Transferring Ownership. These include fees for the title search, title insurance and legal service, and the cost for conducting the settlement. The title procedures are necessary to protect against another person making a claim to your property. Not having clear title can cause serious problems when you want to sell the property.

• Amounts Paid to State and Local Governments. These include state, county and city transfer taxes, recording fees and prepaid property taxes.

• Costs of Getting a Mortgage These include surveys, appraisals, credit checks, loan documentation fees, notary changes, loan origination, commitment and processing fees, hazard insurance, interest prepayment, and lender's inspection fees. Some of these charges are paid well before your actual day of settlement. For instance, when you apply for a loan, the application fee is generally paid up front, as are fees to check your credit record. Other charges are paid the day you close on the property.

  Settlements are conducted by escrow companies, attorneys, lending institutions, title companies, and real estate brokers. In most cases, the person conducting the settlement is hired by the home seller and, therefore, is representing the seller. You may want to retain your own attorney to represent your interests at all levels of the transaction.

  Above everything else, if you are still unsure about something, question the officials at the settlement procedure. They are very knowledgeable professionals and want to help the settlement process run smoothly.

  Written by Collier Merrill, President, Home Builders Association of Northwest Florida.

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  May not be used without written permission from The Home Builders Association of Northwest Florida.