What is Title Insurance?
Insurance that the lender requires and the owner should have against defects in title to the property. The lender’s coverage (based on the amount of the mortgage) terminates upon full payment of the mortgage; whereas, the owner’s coverage (based on the purchase price) is good forever, even after you sell the property. The premium is paid only once, at the time of closing.
What is Mortgage Insurance?
Insurance written by an independent Mortgage Insurance Company protecting the lender against loss incurred by a borrower’s default. This enables the lender to lend a higher percentage of the sales price. It is usually required if the loan is more than 80% of the sales price.
What are Escrows?
Accounts held by a lender for payment of taxes, homeowners insurance and/or mortgage insurance. The borrower pays 1/12th of the yearly escrowed amounts with each mortgage payment. The lender pays the bills from the accumulated funds.
What No Point / No Closing Cost Loans do not cover:
They usually do not cover monies to be escrowed, the initial prepaid interest, the owner’s title insurance policy portion of the total cost of title insurance, and adjustments between buyer and seller.
What types of Buyer / Seller Adjustments are made at the closing?
Items to be adjusted are governed by the terms of the Sales Agreement. These items usually include real estate taxes, sewer, water, fire district tax, oil, rents and security deposits. Most Sales Agreements provide that these items will be adjusted in an equitable manner on either a calendar or fiscal year basis. The seller is usually responsible for those items incurred to the day of closing; the buyer is responsible for those items from the day of closing to the end of the calendar or fiscal year.
Does the Certified Check presented at closing need to be for the exact amount? What if the figure is not known till closing day?
NO, the certified check does not have to be for the exact amount. If the check exceeds the amount due, we will refund the difference. If the check is not sufficient, we will accept your personal check for the difference. We will let you know the amount the check should be issued for as soon as that information is available to us. Please note that the exact figure is often not known until the day of the closing. That is why we suggest you refer to your Good Faith Estimate as a benchmark for what may be needed. The certified check should be made payable to yourself, and it will be endorsed over to us, at closing, as escrow agent. We will make every effort to help you through this process.
When can my loan be scheduled for closing?
First, your loan must be approved and all pre-closing conditions met. Then, your lender will give us an “OK to Schedule”. Once we receive the “OK” we will coordinate the scheduling of your closing with you, the seller and agents. We will make every effort to close at a time and place convenient for you.
What is the “Amount Financed” shown on the Truth-in-Lending disclosure?
The amount financed is the loan amount applied for, minus the prepaid finance charges. Prepaid finance charges include items paid to the lender at or before settlement, such as loan origination, commitment or discount fees (“points”), advance interest and initial mortgage insurance premium. The amount financed is lower thatn the amount you applied for because it represents a net figure. If you applied for $50,000 and the prepaid finance charges total $2,000, the amount financed would be $48,000. However, you will receive credit at closing for the full amount of the loan as shown on the note.
Why is the annual percentage rate (A.P.R.) shown on the Truth-in Lending disclosure higher than the interest rate on the note?
The A.P.R. is determined by applying your monthly payments as specified in the note to the lesser, net figure known as the amount financed. Therefore, if you are paying points and other prepaid finance charges, the A.P.R. will be higher than the note rate. The A.P.R. is designed to allow borrowers a consistent means of comparing loan programs with varying rates, points and costs.
My Truth-in-Lending disclosure says that if I pay the loan off early, I will not be entitled to a refund of part of the finance charge. What does this mean?
This means that you will be charged interest for the period of time in which you used the money loaned to you. Your prepaid finance charges are generally not refundable, nor is any interest that has already been paid.
My note calls for a first-of-the-month payment date, but no late charge will be imposed for a period of 15 days. Can I pay on the 14th of each month and still be in compliance with the note?
No. Payments are due on the first of each month. Payments made thereafter are late. The lender may report you to credit bureaus as a habitual “late payer,” even though no late charge may be imposed for 15 days.
Why do I need to place two additional months of insurance payments in escrow when I have already prepaid my insurance for one year in advance?
The lender is establishing an escrow account that will be applied to the second year’s insurance premium. The two-month escrow collected at closing represents the “cushion” the lender is allowed to hold in escrow. With the addition of each monthly escrow payment, the account will build to a total of 14 months’ escrow by the time the renewal invoice is received – the lender will then pay out the one-year premium (12 months) leaving the cushion of two months of escrow in the account. This scenario is repeated each year.
What is the aggregate accounting adjustment shown on the Department of Housing and Urban Development (HUD) settlement statement?
The aggregate accounting adjustment is a credit to the borrower and reduces the total amount of money for all escrows combined (e.g., taxes, hazard insurance, private mortgage insurance) that must be placed in escrow at closing. The adjustment ensures that the escrow account when reaching its lowest level during the year will not contain more than the allowable cushion selected by the lender (usually two months).
If my loan is sold, can the interest rate or other terms be changed?
No. If your loan is sold, the terms and conditions of the loan will remain unchanged. You will simply be notified that as of a certain date your payments must be sent to a new lender at a new address. Be sure, however, to verify the validity of the loan sale by contacting the old lender directly and confirming the transfer.
Why is the payoff figure shown on the HUD settlement statement for my existing loan higher than the principal balance shown on my last monthly statement?
The payoff figure consists of the outstanding principal balance plus accrued interest, late charges, escrow balance deficiencies and other miscellaneous charges. The borrower is always paying in arrears; therefore, interest is due from the due date of the last payment until the lender received the payoff.
When the closing is over, is the transaction complete even though the deed is not yet recorded?
Between the parties, the transaction is complete when the deed has been delivered and full consideration has been received. However, it is not valid against other persons until the deed is recorded. In most instances the seller does not deliver the deed directly to the buyer; the seller delivers the deed to the closing attorney to be held in escrow until funds are disbursed. Similarly, the buyer pays the consideration to the closing attorney to be disbursed only upon the recording of the deed. Therefore, the transaction is not complete until the deed is recorded and funds are disbursed. From the end of the closing until the time of recording, the transaction is in a state of escrow.