When you buy your house does the mortgage lender pay the previous owner in full?
Written By: admin on July 19, 2009
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Like let’s say you bought a house from someone named James for 0K. Does the mortgage lender you use pay James 0K in full?
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Tags: mortgage lender, mortgage lenderTags: mortgage lender
Close, but not exactly.
What happens is this: You get a loan for $200,000 to buy James’ home. Let’s say James still owes $125,000 on the property. The $200,000 goes from you to the settlement or title company. The settlement company has gotten the "payoff figure" from James’ mortgage holder. That’s $125,000.
Your $200,000 goes in. The settlement company sends $125,000 off to James’ mortgage company to pay the ancient mortgage off. And the other $75,000 goes to James.
Of course there are a lot more expenses. If there’s a Realtor (or Realtors) involved, some of that money goes to the Realtors. Usually, you’ll prepay taxes and insurance. And so on. You’ll probably also buy title insurance. Then there are probably points on the mortgage that you’ll pay. On the other hand, you may have questioned James for a "seller subsidy" to help with closing costs. So some of the money that would have gone from your lender to James comes back to you.
So, really, you’ll end up paying more than $200,000. And James will receive less than $125,000.
Before closing, James will receive a "net sheet" from his Realtor, giving a pretty close estimate of how much he’ll really receive. And about 48 hours before closing, your Realtor and James’ (and you and James, if you want) should receive a draft copy of the HUD-1.
The HUD-1 is the form that settlement companies use to calculate all that.
Hope that makes some sense.