Closing day marks the end of the long home-buying journey. Here’s what to expect when that big day finally rolls around.
Q–We are buying our first home, and the sale is scheduled to close next week. Since we’ve never done this before, we have no idea what to expect. Can you tell us what actually occurs on closing day?
A–Closing procedures vary from one sale to the next. Ask your real estate agent, escrow officer or closing attorney for details about how your particular closing will be handled.
There’s a good chance that you and the sellers will meet in the office of the escrow agent or attorney on closing day. You’ll bring a certified check or money order that represents your down payment. The officer or lawyer will have a check from the lender for the amount you have agreed to borrow.
You will probably have to sign two final loan-related documents at the meeting. The first is a bond or note that constitutes your personal promise to repay the lender. The second document is the mortgage or trust deed itself, which gives the lender the right to foreclose if you don’t make your payments. After the documents are signed, you’ll endorse the bank’s check and give it to the seller in exchange for his deed to the property.
Don’t be surprised if the escrow officer or attorney takes the deed away from you immediately. It’s imperative that the document be recorded with the county that very day, and most escrow holders handle the job themselves or use a special recording service. The deed or a certified copy will be returned to you after a couple of weeks.
Q–I receive $275 a month in alimony payments, and I am about to file a loan application. Can I include that $275 as income on the application to improve my chances of getting the loan?
A–Yes, you can list alimony you receive on your loan application in order to bolster your chances of gaining loan approval.
The lender will likely ask for a copy of your divorce decree and related paperwork. You’ll also be asked to provide some sort of documentation (canceled checks supplied by your ex-spouse, bank statements or the like) that proves you’re actually collecting the alimony that your former soul mate has promised to pay. If your ex is a deadbeat, the lender won’t give you credit for alimony that you’re entitled to receive but cannot collect.
Q–I have a question about the new tax law that allows married couples to keep up to $500,000 of resale profits from their home tax free. My wife and I have owned our home for several years and have also owned a rental for several years. If we sold our home now, we could keep up to $500,000. But if we then moved into the rental and lived in it for two years, could we sell it and keep up to $500,000 more
A–Yes! Several other small rental-property owners have already adopted the plan you’re thinking about now to net as much as $1 million in tax-free profit over the next two years. Here’s the background you need to understand their strategy:
The tax changes that went into effect late last year allow married couples to keep up to $500,000 of their home-sale profits tax free as long as they have lived in the home for at least two of the past five years. Single tax-filers can keep up to $250,000.
Importantly, there’s no limit on how often this valuable tax break can be used. This means you can sell your home now and keep up to $500,000 tax free, move into a rental property you own for two years and then sell that property to keep another $500,000 tax free.
In short, you’d keep up to $1 million in profit from taxation in as little as 24 months. Under the old rules, you would have owed tens or even hundreds of thousands in taxes.
Q–I have started some preliminary shopping to refinance my current mortgage. Rates vary a lot from one local lender to the next. Is there a rule of thumb that says how much money I will save with every one-quarter or one-half point difference in the mortgage rate?
A–Yes. Generally speaking, payments on a $100,000 mortgage drop about $17 a month with every one-quarter point decline in rates. Monthly payments on a $100,000 loan at 7 percent are $666, rise to $683 at 7.25 percent and reach $700 at 7.50 percent.
Here’s an example that illustrates how much you can save by doing a little comparison shopping among lenders. If you borrow $100,000 at 7.50 percent, you’ll pay about $252,000 over the life of a 30-year mortgage ($152,000 in interest, plus the original $100,000 you borrowed). If you find a lender who charges just one-quarter of a percentage point less — a fairly easy task, considering the cutthroat competition among financial institutions these days — your modest $17-a-month savings will translate into a healthy $6,120 if you keep the loan for the full 30-year term.
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Write to David Myers, P.O. Box 2960, Culver City, Calif. 90231-2960.
