Chapter 16
Thomas E.
Gillett
Charles J.
Jacobus
© 2008 by South-Western, Cengage Learning
Georgia Real Estate
An Introduction to the Profession
Seventh Edition
Chapter 16
Closing the Transaction
© 2008 by South-Western, Cengage Learning
Buyer’s Walk-Through
Final Inspection prior to closing
Vacant?
Damage?
Personal Property
Real Property?
Mechanical systems?
Plumbing?
Structure?
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Closing
Closing, Settlement, or
Escrow
Completion of the real
estate transaction
Closing Date
Escrow Agent
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Closing or Settlement Meeting
Seller delivers the deed
Buyer makes payment
Real Estate Agents attend
Attorney represents Lender
Power of Attorney
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Seller’s Responsibilities
Seller & attorney prepare the
deed
Property tax bill
Documents as required by
the contract
Loan pay-off
Keys & garage door opener
Condominium, cooperative or
PUD
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Buyer’s Responsibilities
Settlement funds
Loan commitment
Real Estate Agent
Represents the Broker
Commission Check
New loan
Buyer signs note & mortgage
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Real Estate Agent’s Duties
Listing Agent: Seller is
prepared
Selling Agent: Buyer is
prepared
Keep all parties fully informed
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The Closing
The Transaction
Settlement Statement
Accounting of all monies
paid by Buyer and Seller
Dry Closing
Close in escrow
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Delays and Failure to Close
Closing Date
30 – 60 Days from contract
Delays
Clear Title
Loan Commitment
Damage to property
Termination & Release
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Taxpayer Relief Act of 1997
IRS Form 1099-S
Certification signed by
Seller
2 of past 5 years
No other principal
residence in that time
period
Not used for business or
rental purposes
Price, Capital Gain, Marital
Status
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Prorating at the Closing
Day of closing belong to the Seller
Buyer: interest on new loan
Annual bills: 365 day year
Interest: 360 Day year
Loan amount rounds down to nearest $100
Loan payments due 1st of the month
Calculate to 4 digits past decimal
© 2008 by South-Western, Cengage Learning
Prorating at the Closing
Beginning
Buyer
Seller
Closing
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End
Property Taxes
Annual tax divided by 365 X # of days
Jan 1
Seller
74 days
Dec 31
March 15
$2,070 divided by 365 = 5.6712 X 74 days = $419.67
© 2008 by South-Western, Cengage Learning
Property Taxes
Annual tax divided by 365 X # of days
Jan 1
Buyer
112 Days
Dec 31
September 10
$1,756 divided by 365 = 4.8110 X 112 days = $538.83
© 2008 by South-Western, Cengage Learning
Property Taxes
Annual
Tax
Closing
Date
Who is
Credited?
Days
$2,598
Mar 3
No
Buyer
62
$441.30
$865
Oct 13
Yes
Seller
79
$187.22
$1,398
June 9
No
Buyer
160
$612.82
$4,876
April 7
No
Buyer
97
$12,95.81
$2,723
Aug 20
Yes
Seller
133
$992.22
$1,250
Nov 3
Yes
Seller
59
$202.50
Taxes
Paid?
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Amount
Hazard Insurance
Annual premium divided by 365 X # of days
June 15
138 Days June 14
January 27
$425 divided by 365 = 1.1644 X 138 days = $160.68
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Hazard Insurance
Annual premium divided by 365 X # of days
April 23
132 Days April 22
December 11
$672 divided by 365 = 1.8411 X 132 days = $243.02
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Hazard Insurance
Begin
Date
Closing
Date
Annual
Bill
Days
Amount
Oct 4
Jan 17
$317
259
$224.94
Mar 22
Aug 4
$815
229
$511.33
Jan10
April 16
$713
268
$523.52
July 24
Feb 7
$476
166
$216.48
Aug 7
July 28
$957
9
$23.60
May 16
Sep 16
$593
241
$391.54
© 2008 by South-Western, Cengage Learning
Accrued Interest
Loan Amt X annual interest rate
divided by 360 X # of days
March 1
April 1
23 days
March 23
$79,265 X 7% = $5,548.5500 divided by 360 =
$15.4126 X 23 = $354.49
© 2008 by South-Western, Cengage Learning
Accrued Interest
Loan Amt X annual interest rate
divided by 360 X # of days
July 20
August 20
20 Days
August 8
$248,937 X 6.5% = $16,180.9050 divided by 360 =
$44.9470 X 20 = $898.94
© 2008 by South-Western, Cengage Learning
Accrued Interest
Loan
Amount
Rate
Due Date
Closing
Date
Days
$274,934
8%
July 1
July 22
20
$13,44.12
$264,735
5.25%
April10
April 27
18
$694.93
$73,586
5.75%
Oct 3
Nov 1
30
$352.60
$86,524
6.625%
Feb 1
Feb 17
17
$270.69
$95,476
11.125%
Oct 1
Oct 8
8
$236.04
$194,573
9.25%
May 20
June 7
19
$949.89
© 2008 by South-Western, Cengage Learning
Accrued
Interest
New Loans and Down Payment
L/V: Loan to Value Ratio
Higher L/V = higher risk
Lower L/V = lower risk
Loan Amount
= L/V ratio
Sales Price
80%, 90%, 95% L/V
© 2008 by South-Western, Cengage Learning
New Loans and Down Payment
Computing Down Payment
ALWAYS compute loan
amount first
Round down to the
nearest $100
Subtract from sales price
© 2008 by South-Western, Cengage Learning
New Loans and Down Payment
Computing Down Payment
$157,000 Sales Price
X
90% L/V
$141, 300 Loan Amount
$157,000 Sales Price
- 141,300 Loan Amount
$15,700 Down Payment
© 2008 by South-Western, Cengage Learning
New Loans and Down Payment
$172,400 Sales Price
X
95% L/V
$163,780 Loan Amount
Round down to $163,700
$172,400 Sales Price
- 163,700 Loan Amount
$ 8,700 Down Payment
© 2008 by South-Western, Cengage Learning
Down Payments
Sales Price
L/V Ratio
Loan
Amount
Down
Payment
$267,000
90%
$240,300
$26,700
$173,200
95%
$164,500
$8,700
$135,600
95%
$123,000
$12,600
$385,000
90%
$327,000
$57,400
$87,500
95%
$83,100
$4,400
$172,450
95%
$157,000
$14,550
© 2008 by South-Western, Cengage Learning
Interest Adjustment
If the closing date is the 1st of the month…
Buyer’s 1st payment is due on the 1st day of the
following month
1st Payment pays interest for the preceding month
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Interest Adjustment
If the closing is on any other day….
Buyer’s payment will skip 1 month
1st payment will be due the month after
At closing, buyer will owe interest for the
remaining days in the month of closing
© 2008 by South-Western, Cengage Learning
Interest Adjustment
Sales Price X L/V ratio = Loan Amount
Loan Amount X Interest Rate = Annual Interest
Annual Interest divided by 360 = Daily Interest
Daily Interest X # of days owed = Int. Adjustment
© 2008 by South-Western, Cengage Learning
Interest Adjustment
$225,000 Sales Price
X
90% L/V
$202,500 Loan Amount
X
6% Interest Rate
$12,150 Annual Interest
360
$33.7500 X 25 days = $843.75
Interest
Adjustment
© 2008 by South-Western, Cengage Learning
Interest Adjustment
$176,900 Sales Price
X
90% L/V
$159,210 round down to
$159,200 Loan Amount
X 6.625% Interest Rate
$10,547.0000 Annual Int.
360
$29.2972 X 25 days = $849.62
Interest
Adjustment
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Interest Adjustments
Sales
Price
L/V
Ratio
Rate
Closing
Date
1st
Pymt
$295,000
80%
6.5%
Mar 13
May 1
$236,000
19
$809.61
$172,500
95%
6.75%
Oct 27
Dec 1
$163,800
5
$153.56
$223,500
90%
6.75%
May 6
July 1
$201,100
26
$980.36
$88,700
95%
7%
June 1
July 1
$84,200
0
0
$675,800
75%
7.25
Nov 17
Jan 1
$506,800
14
$1,428.88
$108,000
90%
5.75%
Jan11
Mar 1
$97,200
21
$326.03
Loan Amt Days
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Amt
Rent Prorations
Rent is paid in advance
Seller is entitled to rent on the day of closing
Monthly Rent divided by # of days in the mo.
X the # of days from the day after closing
until the end of the month
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Rent Pro-ration
$850 Monthly Rent
31 Days in March
= $27.4194 Rent per day
$27.4194 Rent per day
X 11 Days owed
$301.61 Rent to Buyer
© 2008 by South-Western, Cengage Learning
Rent Pro-ration
$1,250 Monthly Rent
30 Days in Sept.
= $41.6667 Rent per day
$41.6667 Rent per day
X 26 Days owed
$1,053.33 Rent to Buyer
© 2008 by South-Western, Cengage Learning
Interest Adjustments
Closing
Date
Oct 10
Monthly
Rent
$1,480
Days
Amount
21
$1,002.58
May 3
$825
28
$745.16
June 28
$1,450
2
$96.67
Feb 17
$725
11
$284.82
July 20
$1,800
11
$638.71
Sep 9
$900
21
$630.00
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Mortgage Insurance
Conventional Loans with greater than 80% L/V ratio
Upfront Charge (.5% - 1%)
Annual Premium ( .3% - 1%)
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Mortgage Insurance
Upfront Charge 1.5%
Annual Premium .5%
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Mortgage Insurance
Loan Amount X the Percentage =
Mortgage Insurance
© 2008 by South-Western, Cengage Learning
Upfront PMI
$175,000 Sales Price
X
90% L/V
$157,500 Loan Amount
$157,500 Loan Amount
X
.8% Upfront Premium
$1,260 Upfront PMI
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Annual PMI
$157,500 Loan Amount
X .65% Annual Premium
$1,023.75 Annual Premium
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MIP
$116,400 Loan Amount
X
1.5% Upfront Premium
$1,746 Upfront MIP
$116,400 Loan Amount
X
.5% Annual Premium
$582 Annual Premium
© 2008 by South-Western, Cengage Learning
Mortgage Insurance
Sales
Price
Type
Loan
Amount
Upfront
%
Annual
%
$225,000
90%
$202,000
.75%
.5%
$1,518.75 $1,012.50
$420,000
95%
$399,000
.9%
.75%
$3,591.00 $2,992.50
$142,000
FHA
$135,400
1.5%
.5%
$2,031.00
$284,500
95%
$270,200
085%
065%
$94,300
FHA
$90,000
1.5%
.5%
$1,350.00
$450.00
$88,250
90%
$79,400
.6%
.45%
$476.40
$357.30
© 2008 by South-Western, Cengage Learning
Upfront
Amount
Annual
Amount
$677.00
$2,296.70 $1,756.30
Tax Escrow
1/12 of annual property taxes, homeowners
insurances, and mortgage insurance
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Tax Escrow
Annual tax bill divided by 12
X the number of months
$2,275 divided by 12 = $189.5833 X 7 months =
$1,327.08
© 2008 by South-Western, Cengage Learning
Tax Escrow
Annual Taxes
Number of
Months
Tax Escrow
$2,750
3
$687.50
$1,635
9
$1,226.25
$1,397
13
$1,513.42
$4,286
5
$1,785.83
$3,264
8
$2,176.00
$982
10
$818.33
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Insurance Escrow
Annual Insurance bill divided by 12 X 3
$450 divided by 12 = $37.5000 X 3 months =
$112.50
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Tax Escrow
Annual Insurance Bill
Insurance Escrow
$865
$216.25
$504
$126.00
$1,649
$412.25
$973
$243.25
$2974
$743.50
$776
$194.00
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Transfer Tax
Sales price minus any assumable loan =
Adjusted Sales Price
10 cents per $100 or any portion thereof
2008 GAR Contracts – paid by buyer
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Transfer Tax
Sales Price
- Assumed Loan
= Adjusted Sales Price
divide by 100
Round up to the next
whole number
X .10
= Tax owed
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Transfer Tax
$126,700 - 0 = $126,700 divided by 100 =
$1,267 X $.10 = $126.70
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Transfer Tax
$98,700 - $73,214 = $25,286 divided by 100 =
252.86 round up to 253
253 X .10 = $25.30
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Transfer Tax
Sales Price
Assumed?
Transfer Tax
$265,800
Existing
Loan
$174,473
No
$265.80
$163,700
$149,576
Yes
$14.20
$125,000
$95,674
Yes
$29.40
$374,700
$202,395
No
$374.70
$254,600
$201,578
Yes
$53.10
$96,500
$79,746
No
$96.50
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Intangibles Tax
$1.50 per $500 or any part thereof
on a new loan
New loan divided by 500
Rounded up to the next whole number
X $1.50
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Intangibles Tax
$225,000 Sales price X 90% L/V =
$202,500
divided by 500 = 405
X $1.50 =
$607.50 Intangibles Tax
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Intangibles Tax
$167,400 Sales price X 90% L/V =
$150,660 rounded down to $150,600
$150,600 divided by 500 =
301.2 rounded up to 302
X $1.50
= $453.00 Intangibles Tax
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Transfer Tax
Sales Price
$88,500
New Loan
Type
90%
Loan
Assumed
$79,600
Intangibles
Tax
$240.00
$165,000
80%
$132,000
$396.00
$126,200
95%
$119,800
$360.00
$458,500
80%
$366,800
$1,101.00
$217,200
100%
$217,200
$652.50
$95,500
90%
$85,900
$258.00
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Closing the Transaction
Buyer & Seller Worksheets
Settlement Statement
HUD-1
Required by RESPA
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RESPA
Regulates and
standardizes settlement
practice
Restrictions
Prohibits kickbacks
Impounds restricted to an
additional 1/6
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RESPA
Benefits
HUD Information Book
Good Faith Estimate
HUD Settlement
Statement
Inspect HUD-1 day prior
to closing
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Key Terms
Closing
Settlement
statement
Closing agent
Walk-through
Prorating
RESPA
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