How to make sure you have "good funds" for your real estate closing

Wire transfers are a very common aspect of the real estate settlement process. But for many consumers, the purchase of a home is their only exposure to wire transfers, which can lead to confusion and unnecessary stress. 

To clear up any confusion and to help prepare our clients for settlement, here is rundown of some of the questions we hear and things to consider regarding wire transfers.

I wired directly via my bank’s website and money has left my account – why don’t you have it yet?

This is a question I have gotten more than once.  Did your bank charge you a fee for this "wire"?  The answer to this follow-up question, is usually "no" or "I paid a small fee." What your bank may not be telling you is that you are actually ordering an ACH (Automated Clearing House) transaction and not a wire directly from your bank to our bank.  

You will need to check in with your bank prior to sending out funds to make sure the fee you are paying is for sending a wire and not a fee for an expedited ACH.  Our bank will not accept ACH transactions for the purchase, because the ACH funds are not considered good funds.

Why aren’t ACH funds "good funds" for purchasing my home?

An ACH goes through a clearing house. Because these are bulk transactions, the funds are not "liquid," or immediately available funds. ACH funds can be adjusted, changed or recalled by the clearing house without authorization from the accountholder. In general, our bank will not accept ACH funds for any of our accounts

Can I write a personal check?

The short answer is no. Personal checks are not considered immediately available funds. Unfortunately, not all personal checks are good when they are written – either by mistake or by design, clients sometimes fudge that funds are available. There are occasions when we can accept a personal check for a small amount of funds at closing.

What are "good funds" for closing?

A wire, cashier’s check, or a certified check is considered good funds. A wire is considered good funds because the funds are wired from your bank directly to our bank via the Federal Reserve and are immediately available. Another example of good funds would be a cashier’s check. These funds are immediately available from the bank.

A certified check is not often used as a vehicle for funds, but is still acceptable. A certified check is a personal check that has been stamped and certified by a bank official the funds are available in the account. The bank then make sure those funds are only good for that purpose. Banks rarely issue certified checks, as it is much easier to issue a cashier’s check. 

So, how do I make sure I have "good funds" for closing?

All banks are different. Have a conversation with your bank early in the process. Find out what your bank needs from you to wire funds. Ask your bank if there are any fees involved to wire funds and how much lead time the bank needs for getting funds to closing on time. Also, make sure you coordinate with your settlement agent and lender to ensure you have the correct bottom line and have the amount of funds to close readily available prior to closing.   

Taking these steps early really help to make the buying process a little less stressful.   

Headlines: Cultural hub coming to U Street? Cost of FHA loan to drop

Here's a look at what's happening in real estate in and around the District of Columbia.

Proposal would bring museum, condos and performing arts center to U Street area

Under the proposal, the former Grimke School would be transformed into a cultural hub. In addition to creating a permanent space for the African-American Civil War museum, the building would be home to several performance groups, including Step Afrika!, CityDance, Dance USA and Imagination Stage. -Washington Post

Washington housing in 2014: Almost back

The median price of a house or condo that sold in the Washington region in 2014 was $405,750, up just 1.4 percent from 2013, but just 2.2 percent shy of the 2007 peak price of $415,000, according to listing service MRIS' RealEstate Business Intelligence Report. -Washington Business Journal

A year later, little resolution on contested Florida Avenue site

On Feb. 3, 2014, two developers struck a deal that seemed poised to resolve a longstanding conflict and bring U Street NW-area neighbors what they desired: a mixed-use development with a Harris Teeter supermarket on what's currently a vacant lot. Nearly a year later, all of that is still up in the air. -Washington City Paper

Groundbreaking this week on third phase of Waterfront Station project

Groundbreaking is expected to begin this week for the 365-unit residential project in Waterfront. This project is the third phase in the Waterfront Station project that is completely revitalizing the neighborhood with more than 80,000-square-feet in retail, more than 500,000-square-feet in office space, and hundreds of residential units along 4th Street. -Curbed DC

CFPB site provides education for new homebuyers

The site is part of the agency’s Know Before You Owe campaign and includes interactive tools aimed at creating more informed and empowered homebuyers. -Urban Turf

FHA to lower cost of mortgage insurance

For the typical FHA applicant, the reduction in premiums means a savings of about $80 on their monthly payment, according to CoreLogic's chief economist, Sam Khater. -CNBC

Hazard Insurance – If I change it, will it affect my mortgage?

If you are like everyone else, you have at least one New Years’ resolution.  Some choose weight loss, others fiscal awareness, other personal awareness, etc, etc.  If one of your resolutions is to lower your monthly costs and you are looking at changing your hazard / homeowner’s insurance, make sure you talk to your mortgage company.  

Why, you ask?  Well, you want to make sure you have enough insurance to meet the lender’s guidelines and the lender has notice of your insurer.  

What do you mean by "having enough insurance to meet the lender’s guidelines"?

If you change your insurance (lower your coverage), then there is a possibility you no longer have the amount of coverage required by your lender. Your lender is guided by the type of loan you have and specific guidelines provided to the bank either internally or by the government. You can contact your lender to get the list of requirements/guidelines for your coverage, so you can make sure you get the insurance that is best for your budget AND meet those requirements.

Why does it matter is I change insurance companies as long as I have the same or better coverage?  

In the documents you typically sign when getting a loan, there is typically a document stating you will keep your insurance intact and you will provide the lender proof of insurance – regardless of whether you have your insurance paid out of escrow or you pay the insurance directly. The lender will need to make sure the new company and the new policy meets the appropriate guidelines. The lender will also be checking to make sure it is listed on your policy as a mortgagee and the mortgagee clause is correct.

(Please note that the lender is focused on the fact that you are changing your insurance company. Does not matter if you are leaving your coverage the same, increasing coverage or decreasing coverage.)  

What happens if I do not contact the lender when I change to a new insurance company?  

The lender usually checks on insurance annually – whether you have a current policy and it has the appropriate coverage. If the lender checks in with the old company, it is likely the old company will report they no longer insure your property. When this happens and no new insurance company information has been provided to the lender, the lender will send a letter to you allowing you to provide proof of insurance. If you do not respond to this letter, the lender will put into place its own insurance – forced-place insurance is not easy to get removed.  

What is the bottom line?

When and if you change your hazard/homeowner’s insurance, call your lender to make sure those changes will not affect your loan servicing.

FHA to reduce cost of mortgage insurance

In an attempt to bring more First-Time Homebuyers back into the housing market, the Federal Housing Administration ("FHA") recently announced that it would reduce its annual mortgage insurance premiums from 1.35 percent to 0.85 percent.  

This is estimated to save borrowers approximately $1,000 per year on a $200,000.00 loan, for example.

After requiring a $1.7 billion bailout from the federal government as a result of a high number of loan defaults during the financial crisis in 2013, FHA more than doubled the mortgage insurance premiums to rebuild its funds and raised the average credit scores required in order to qualify for an FHA loan.  

Now that FHA has started to earn profits, industry insiders called for FHA to reduce the insurance premiums to allow more borrowers back into the market.  FHA has also stated that they will take additional steps over the upcoming months to reduce additional mortgage costs by cutting red tape and making lending standards more clear.

The new policy is expected to go into effect by the end of January 2015.

Timely recordings for DC properties thanks to e-recording

Once a deed is signed, sealed and delivered, the transfer from seller to the buyer has taken place. It is not legally necessary or required for the document to be recorded.  

However, in order to protect the buyer’s interest in the property, Federal Title & Escrow Company records the deed with the Land Records office, providing constructive notice that the property has transferred.  

By recording the deed, another party is prevented from recording a document (such as a lien, judgment or even another deed) that could cloud the chain of title. It also provides notice of who is the owner of the property. 

Back in 2011, Federal Title started using DC’s e-recording process. The results have been outstanding. Previously, a recording had to be physically delivered to the DC Recorder of Deeds.  These manual recordings were often met with recording delays, as the recording process required the coordination of efforts among the Recorder (i.e. the person standing in line for hours at the Recorder of Deeds to obtain the Clerk’s recording receipt) the courier/mailing service, the settlement company and the Recorder of Deed office.  

The manual recording process provided only a Recorder’s receipt at the time of recording, and the recorded Instrument was mailed to the settlement company within six months of the actual recording date.  

Now with electronic recording, the recording process in DC is completed within hours of the settlement, as the process involves only the settlement company and the Recorder of Deeds!  

The best part is, the client is provided not just with a Recorder’s receipt to evidence that the document has been recorded, but also with the fully recorded document upon the completion of the recording process.

What does this mean to clients?  

It means that a deed is on record the same day of your closing, typically within hours. This greatly reduces the risk of fraud, conflicting recordings or lost documents.  

The DC Recorder of Deeds office has been at the forefront of the industry and deserves considerable praise for establishing a method to record that has been easy to use and helps protect the interests of all parties.  

Not all title companies are using e-recording, but Federal Title recognized early on the benefits of adopting e-recordings and our clients are benefitting by knowing that their documents are recorded in the District of Columbia within hours of the closing – just another example of how Federal Title embraces technology to improve closings. 

Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.