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How to Choose the Right Closing Agent for Your Owner Builder Loan

Sep 3, 2008
Owner builder construction loans are more complicated than simple purchase or refinance loans. Whereas these simple loans are typically involve one easy step, owner builder construction loans on the other hand involve the payoff of the land, the construction loan holdback amount, and the conversion to the permanent financing. In other words, that's three loans wrapped into one.

Therefore, if you need a construction loan, especially if you are going to be an owner builder, you should take the time to choose the right closing agent. It is important to understand the role of the closing agent and the things to look for when hiring one.

So, what exactly does a closing agent do in relation to your loan? For owner builder construction loans, the closing agent will assist you with the signing of all the final loan documents. This is typically an attorney or a title company. Generally, you can freely choose between either of these to do the closing for you. A few states, however, require you to use an attorney for the closing.

The owner builder lender will provide instructions to the closing agent just prior to the scheduled closing date, and the closing agent will prepare a long list of paperwork for you to sign. One of the most important documents is the settlement statement, often in the form of a document called a HUD-1. It is this document that itemizes the owner builder loan transaction, including all of your closing costs.

However, the closing agent will also handle the payoff to the seller for the land if the purchase of the land is wrapped into the construction loan. If the owner builder already owns the land, then the closing agent will oversee the payoff of the balance of the loan on the land. Likewise, for owner builder construction loans, the closing agent will ensure the appropriate distribution of closing cost fees to the appropriate parties.

This fee distribution and paperwork preparation is done for you at closing. However, prior to closing, the closing agent will be the main point of contact for your owner builder loan's title work. Title work is simply insurance against other, unknown liens on your property. The closing agent will coordinate the delivery of this title insurance to the lender for review in the loan's underwriting stage. For owner builder construction loans, though, the closing agent might also oversee title insurance updates while you your own home. (Often, the lender will have its own title company to handle these updates during the construction phase.)

So, now that you understand the closing agent's role for your owner builder loan, you ought to know what to look for when choosing the right company. Most people immediately look for the cheapest closing agent, but this is often a waste of time and effort. The bulk of the closing fees are going to be set by someone other than the closing agent. The fees specific to the closing agent typically vary within a local area by no more than a couple hundred dollars. Therefore, hiring one closing agent versus another agent in a town will typically have very little cost variation.

Therefore, it's more important for an owner builder to hire a closing agent who is familiar with construction loans. If the closing agent has never done a construction loan before, the paperwork and lender's instructions will be foreign to them. This can easily cause delays and headaches for you, the borrower.

Also, you will want to find a closing agent that can handle closings in the county where the subject lot is located. Because the closing agent is the one who will record your deed of public record at the local courthouse or county office, the closing agent has to be able familiar with the county where the land is located. And, speaking of location, it also helps if the closing agent's office has a convenient location for you to drive to for the final closing.

Finally, when an owner builder chooses his closing agent, he may want to decide between hiring an attorney or hiring a title company. Often, title companies that perform the title searches on the subject property will also provide services as the closing agent. There are two advantages to this: the fees are often slightly lower, and you have direct contact to the company that is providing the title insurance.

However, you may wish to hire an attorney as your closing agent instead of going straight to a title company. The advantage to using a closing attorney is that they can provide you with legal guidance that a title company may not be willing or able to do. In some states, you won't have a choice. You may have to hire a closing attorney due to state laws.

Therefore, if you need an owner builder construction loan to build your own home, then don't choose your closing agent based solely on price. Instead, an owner builder should look for a title company or a closing attorney that has a background with construction loans and that is familiar with the local area.
About the Author
Chris Esposito specializes in owner builder loans for people who want to build their own house without the costs of a GC. For more information about these construction loans, visit Owner Builder 101 or call (877) 876-3688.
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