Title and Closing cost Questions and Answers

It’s the day you go to the title or escrow company, sign your name on the dotted line, hand over a check and prepare to take ownership of your new home. You even lost some sleep in anticipation. It’s also the day that you and the seller will pay “closing” or settlement costs, an accumulation of separate charges paid to different entities for the professional services associated with the buying and selling of real property. It’s too often a day filled with uncertainty and stress; sometimes you won’t know (due to bank and title changes) the amount you’re supposed to bring until an hour before closing! To help you better understand this confusing subject, the Pillar Title addresses some of the questions most commonly asked about title, closing and closing costs.

[Q]What services as a buyer will I be paying for when I pay closing costs?
[A]You will usually be paying for such things as real estate commissions, appraisal fees, loan fees, survey fees. escrow charges, advance payments such as property taxes and homeowner’s insurance, title insurance premiums, pest inspections and the like. In Central Ohio the seller will reimburse you for the title fees you pay; in most of the rest of Ohio, you will pay for them yourself or pursuant to the contractual agreement if different.

[Q]How much should I expect to pay in closing costs?
[A]The amount you pay for closing costs will vary; however, when buying your home and obtaining a new loan, an estimate of your closing costs will be provided to you pursuant to the Real Estate Settlement Procedures Act after you submit your loan application. This disclosure provides you with a good faith estimate of what your closing costs will be in the real estate process. An itemized list of charges will be prepared when you close your transaction and take title to your new property. Certain amounts are “fluid” and change daily, such as the per diem interest you will pay on the loan.

[Q]Can I pay for my closing costs in installments?
[A]No, and it is easy to understand why. Many different parties will have fulfilled their responsibilities and be awaiting payment upon closing. The title or escrow company will disburse monies to those parties, pursuant to the escrow instructions, when funds are available. And the payoff of the seller’s mortgage (if any) needs to be wired out the same or next day. All funds will be coming in and out of the escrow almost simultaneously.

[Q]Will I be allowed to write a personal check to cover my closing costs?
[A]Your closing funds should be in the form of a cashier’s check, or by bank wire, made payable to the title company or escrow office in the amount requested. Personal Checks can be accepted if in an amount less than $1000.00. A personal check may delay the closing or may be unacceptable to the title or escrow company. An out-of-state check could also cause a delay in your closing due to possible delays in clearing the check.

[Q]Is it the law in Ohio that I must purchase title insurance when I buy or refinance a home?
[A] No. However, virtually all lenders require title insurance for the face amount of their mortgage, whether purchase or refinance. Some only require an Attorney’s letter opinion of the title examination. Prudent owners also value the protection afforded by the payment of the one-time title insurance premium.

[Q]How much can I expect to pay for title insurance?
[A]This point is often misunderstood. Although the title company or escrow office usually serves as a meeting ground for closing the sale, only a small percentage of total closing fees are actually for title insurance protection. Your title insurance premium may actually amount to less than one percent of the purchase price of your home, and less than ten percent of your total closing costs. But with a low purchase price title premiums can be much higher. The title policy is good for as long as you and your heirs own the property with the payment of only one premium.

[Q]Who will pay for title insurance charges, the buyer or seller?
[A]Surprisingly, “who pays” is not uniform from county to county in Ohio. In some counties, the buyer will pay while in others the seller will pay. In other countries the seller will pay for the owner’s title policy and the buyer will pay for the lender’s policy. But in every case, the question of who pays closing costs is a matter of agreement between the buyer and seller. Usually, this agreement is based on the customary practice in your county

[Q]Why are separate owner’s and lender’s title insurance policies issued?
[A]Both you and your lender will want the security offered by title insurance. Your home is an important purchase, and you will want to be certain your home is yours, all yours. Title insurance companies insure your rights and interests in order to protect you against claims. Your lender is looking to insure the enforceability of their lien as against other liens on your property, and establish marketability of the real estate free and clear of potential claims after closing.

[Q]What is meant by “marketability”?
[A]Local lenders will “originate” or place a mortgage loan on a property in one state, and, often, sell it to an out-of-state investor. This investor, who may never see the property, needs to know that he has a valid and enforceable lien. Title insurance is the way of making enforceability certain. Without a current title policy, the loan is essentially unmarketable.

[Q]What does my title insurance policy pay for?
[A]Title insurers, unlike property or casualty insurance companies, operate under the theory of “risk elimination.” Risk elimination can only be accomplished after an intensive period of risk identification. Title companies spend a high percentage of their operating revenue each year collecting, storing, maintaining and analyzing official records at government agencies, federal and county counties for information that affects title to real property. The issuance of a title insurance policy is highly labor-intensive. It is based upon the maintenance of a title records, in many cases dating back over a hundred years. Each day, documents affecting real property are recorded so that when a title search on a particular parcel is requested, the information is accessible to experienced title examiners to identify the rights others may have in your property, such as recorded liens, legal actions, disputed interests, rights of way or other encumbrances on your title. Before closing your transaction, you can seek to “clear” those encumbrances which you do not wish to assume. The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise. Of course, this is impossible—we live in an imperfect world, where human error and changing legal interpretations make 100 percent risk elimination impossible. When claims do arise, title insurance companies have professional claims personnel to make sure that your property rights are protected pursuant to the terms of your policy. When you pay for your title insurance policy, you are paying for a team of professionals who have worked together to deliver you a title insurance policy which represents protection for your ownership of real property.

[Q]Who can I look to for straight answers on title and closing costs?
[A] Title or escrow company personnel are available to review and explain your title policy and your closing statement. Should you still have further questions or need legal or tax advice, the title officer and attorney at Pillar title can help by giving you legal advice.