In an effort to keep Hampton Roads Realtors®, agents, brokers and lenders up to date on title and closing issues, Reliant Title is now publishing a bi-weekly email we thought you might be interested in.
FHA Mortgage Payoffs- It is essential that you determine the type of mortgage your seller has on the home before the sale's contract is written. WHY? ---- Interest on an FHA mortgage accrues monthly and, is charged the first of the month for the entire month, whereas conventional mortgage interest accrues on a "per day" basis. Interest charged on an FHA payoff is the same whether the sale is completed on the 3rd, 15th or 25th of the month. Conventional and VA loans accrue interest charges daily.
We often receive contracts that call for closings within the last few days of the month. We have no way of knowing that an FHA payoff is involved until we obtain the payoff statement from the lender. That's fine if its a conventional mortgage payoff. But for an FHA mortgage, it could cost the seller an additional month's interest if there are any delays on the buyer's side and the deal goes into the following month.
When taking a listing and preparing the "net" sheet for your sellers, not only ask for loan balances, but also ask what type of mortgage they have. Specifically ask if it is an FHA mortgage. This should dictate later how you prepare the sales contract, and establish a settlement date. You may want to add language in the sales contract regarding the settlement date to protect your seller if the sale is delayed through no fault of the seller. Also allow for at least 5 business days before month end to allow for recording and disbursement of the file. Closing on the 29th/ 30th will not ensure that payoff funds will get to the lender in time. Some lenders do not accept wires, and there is also the potential for court house closings due to weather.
Please call us at 493-7600 if you have any questions regarding FHA mortgage payoffs.
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