by Dan Krell © 2008.
Most people don’t think much of settlement day, other than preparing to sign a lot of documents. This is an exciting day to be sure, but there are still many items to consider to make sure your settlement is stress free. One item often overlooked and taken for granted is your funds to close.
Preparing your funds for settlement begins when you receive your Good Faith Estimate (GFE) from your lender. The GFE should provide you an estimate of your closing costs. However the GFE is just an estimate, your settlement agent will provide an accurate closing cost figure by preparing your settlement sheet (also known as the HUD-1).
According to the Real Estate Settlement Procedures Act (RESPA), the home buyer can request a HUD-1 one day prior to settlement (HUD.gov). If requested, the settlement agent must provide a completed HUD-1 to the home buyer with the information available to the settlement agent at that time. Sometimes, the settlement agent does not have all the figures to provide an accurate HUD-1 a day before settlement because lenders sometimes wait to the settlement day to provide their closing instructions, lender charges and required escrows. If you are unsure of the amount to bring to settlement, you should ask your settlement agent. When HUD-1 is delayed due to the home buyer’s lender, some settlement agents often recommend preparing funds based on your GFE.
A common mistake for first time home buyers is not having their funds at settlement or having the funds in the wrong form. Although the home buyer receives a GFE from their lender, some home buyers forget to make those funds available (through account transfers and/or gift funds). Not having your funds will certainly postpone your settlement.
Additionally, the form of the funds brought to settlement is often another point of confusion. Settlement agents prefer a “cashier’s check” for the amount owed, because this type of check is “guaranteed” by your bank and treated as if it were cash.
Sending funds electronically (wiring funds) to your settlement agent is another option to get funds to settlement. Funds are often wired when the home buyer’s bank is not local or large amounts of money are needed for settlement. In today’s digital age, it may seem easier to “instantly” wire funds to your settlement agent; however you are relying on a person to physically input the information, which could cause a delay if not executed immediately. Additionally, there is usually a fee associated with wiring funds.
If you are fortunate to receive a completed HUD-1 a day before settlement, the amount you owe is sometimes not accurate as mistakes are often made on adjustments to property taxes, HOA fees, and seller concessions. These mistakes are often discovered at settlement, so you may actually owe a bit more or less. If while in settlement you find that you owe more, the settlement agent will usually take a personal check for the difference (if the amount is less than $1,000). If you find that you brought more money than you owe, you’ll receive the difference at the end of settlement.
The process of buying and selling a home can be exciting as well as nerve-racking. Being prepared for settlement can reduce anxieties as well as prevent unnecessary delays.
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 29, 2008. Copyright © 2008 Dan Krell.