| Signing loan documents can be intimidating | | | | about using someone else. |
| even for the most seasoned real estate | | | | |
| professional. But things are even worse today | | | | The second important form in the package is |
| because most Title Companies offer their | | | | the Note, which will usually be located about |
| clients the convenience of having a mobile | | | | half way through the stack, either in front |
| notary bring the loan documents to their | | | | of or behind the Deed of Trust. The Deed is |
| homes to get signed. That means the Escrow | | | | pretty easy to find because it's a 14 or |
| Officer is nowhere to be seen and most | | | | 15-page document with "page 1 of 15", "page 2 |
| notaries don't know enough to properly answer | | | | of 15" and so on at the bottom of each page, |
| peoples' questions. Without any way of | | | | so you can flip through the stack and find it |
| getting clear answers, the signing process | | | | quickly. The Note is usually near by. |
| has become even more frightening than before. | | | | |
| | | | The Note is generally a 4 or 5-page document |
| As usual, a little knowledge goes a long way | | | | and details the loan amount, lender, interest |
| to reduce the fear factor. Certain forms are | | | | rate, date of your first payment, length of |
| more important that others and an educated | | | | time the interest rate is fixed for, any |
| borrower can quickly establish if the | | | | interest-only options and the prepayment |
| documents meet their expectations or not. | | | | penalty stipulations. You will have already |
| Unfortunately, it's not uncommon for Mortgage | | | | seen some of this on the Estimated Closing |
| Brokers to change little (and sometimes not | | | | Statement but you should definitely look at |
| so little) things right at the end of the | | | | (1) the interest rate - make absolutely sure |
| process and many people end up with surprises | | | | that's correct, (2) the length of the fixed |
| when it's clearly too late to make changes. | | | | period - that's important and (3) the |
| | | | prepayment penalty - that will be on page 2 |
| So let's look at the specifics. There are two | | | | or 3. Many Notes have addendums, particularly |
| forms in California loan packages that are | | | | for prepayment penalties, so make sure to |
| more important than all the others; the | | | | look past the Note to see if there's an |
| Estimated Closing Statement and the Note | | | | addendum. |
| itself. If everything's right on those two | | | | |
| forms, the rest of the package will probably | | | | If everything on the Note looks good and the |
| be fine as well. | | | | Estimated Closing Statement is also as you |
| | | | expected, the rest of the package should be |
| The Estimated Closing Statement is usually at | | | | fine. Once you've gone through those two |
| the top of the stack. It's compiled by the | | | | documents, the heavy lifting is over. But |
| Title Company and has their contact | | | | there are still a number of things you should |
| information on the top of the page. It's | | | | know while signing the rest of the documents. |
| usually on legal-sized paper and details all | | | | |
| the costs and fees associated with the | | | | First, the Note describes everything to do |
| transaction. In most cases, there will be two | | | | with the loan, but it hardly mentions the |
| columns going down the right-hand side of the | | | | property at all. The Deed of Trust deals with |
| page; one for debits and the other for | | | | the property and your obligation to keep it |
| credits. | | | | insured and in livable condition, etc. Deeds |
| | | | of Trust are all standardized these days so |
| You can think of the far right-hand column as | | | | if there's anything unusual, it will be |
| the 'source of funds' and the left column as | | | | detailed in a separate document called a |
| the 'use of funds'. So your new loan amounts | | | | "rider", similar to an addendum. You can have |
| will be listed on the right-hand side, along | | | | riders for all kinds of things, including an |
| with any deposits or credits issued along the | | | | adjustable interest rate, a balloon payment, |
| way. On the left-hand side, it will show | | | | a condominium, a rental property, a trust, a |
| either the old loans being paid off (for a | | | | planned unit development (or PUD) or a second |
| refinance) or the money going to the seller | | | | home. Don't be alarmed by riders. They do it |
| of the property (for purchase transactions). | | | | this way to simplify the Deed and make it |
| | | | easier to understand. Just know that the Deed |
| The left-hand column will also list all the | | | | is almost entirely boiler plate copy - very |
| fees of the transaction. These fees should | | | | standard stuff. In fact, you can see what's |
| closely correspond to the fees listed on the | | | | filled in because it's usually in a different |
| original Good Faith Estimate provided by your | | | | font. Everything else is standard. |
| Mortgage Broker. You should immediately look | | | | |
| at these fees to see if there's something | | | | There will be a document in the package |
| there you didn't expect. Keep in mind that | | | | called the Truth-in-Lending Disclosure. This |
| this list is the most recent and most | | | | is the most regulated document in the entire |
| reliable estimation of the final closing | | | | industry and is required for all lenders. |
| figures, and there are often unforeseen | | | | Along with a variety of other items, the |
| details that only pop up at this final stage. | | | | Truth-in-Lending disclosure tells you the |
| Some of those details come up through the | | | | APR, and everybody has to calculate the APR |
| title report. If there are delinquent | | | | the same way. Unfortunately, there are so |
| property taxes on record, for example, | | | | many loan options these days that it's hard |
| they'll have to get paid. There may be | | | | to put 2 programs together in a head-to-head |
| another lien on the property or the next tax | | | | comparison, but it's still good to know what |
| installment might be due. These examples are | | | | this form attempts to do. |
| unavoidable but there are others that may | | | | |
| have been added at the last minute to boost | | | | When you get a loan, you normally pay some |
| profitability for the Mortgage Broker or the | | | | money - closing costs - to complete the deal. |
| Title Company. These are the things you need | | | | So let's say you're getting a $300K loan and |
| to be wary of. | | | | you're paying $5K in fees directly related to |
| | | | the origination of that loan. So you pay $5K |
| The Estimated Closing Statement will usually | | | | in and get $300K out. $5K in, $300K out. So |
| be broken down into two main sections; lender | | | | it's really the same as paying nothing and |
| fees and title & escrow fees. All of the | | | | getting $295K out. Same thing. If you pay $5K |
| fees charged by OR through the lender will be | | | | in and then get $300K out, it's the same as |
| listed in the first section. This is where | | | | getting $295K with no fees. Well, the APR |
| you want to look out for the agreed upon | | | | takes that into consideration and calculates |
| origination fees and any points you decided | | | | an interest rate that wraps in all these fees |
| to purchase. You also want to look out for | | | | as if they were already included, making the |
| inflated processing fees or other unexpected | | | | APR generally HIGHER than the rate specified |
| "junk fees" like administration fees or | | | | on the Note. |
| application fees that you didn't agree to at | | | | |
| the beginning. | | | | For Intermediate ARMs, the APR also takes the |
| | | | adjustable portion of the loan into |
| This first section will also list the prepaid | | | | consideration, including the index and the |
| items being collected by the lender. Examples | | | | margin. It provides a weighted average |
| of these items would include prepaid interest | | | | interest rate for the entire 30-year period |
| as well as reserve funds for an impound | | | | based on the initial fixed period of 5, 7 or |
| account. An impound account is where your | | | | 10 years and then the remaining years at the |
| property taxes and insurance are collected | | | | adjustable equivalent, assuming interest |
| WITH your monthly mortgage payment. The | | | | rates remain exactly as they are today. |
| advantage is that you don't have any | | | | Although this attempts to provide borrowers |
| unexpected bills during the year. But the | | | | with more complete information, it actually |
| downside is that you have to bring in some | | | | obscures the APR and makes it less relevant |
| extra funds to the closing to setup the | | | | considering the objectives for the loan. For |
| "reserve account". This reserve account | | | | example, most people who get a 5/1 ARM (fixed |
| ensures there will always be enough money | | | | for 5 years) have no intention of keeping the |
| available to pay these bills at the time they | | | | loan longer than the fixed period, making the |
| are due, plus some extra just in case. | | | | index plus margin completely irrelevant. |
| | | | |
| These reserves can add up to a significant | | | | This is particularly dangerous for Subprime |
| chunk of change so the decision to have | | | | loans where the index plus margin might be 2 |
| impounds can significantly affect the amount | | | | or even 3 percentage points higher than the |
| of cash you have to bring to the Title | | | | starting rate, making the APR MUCH higher |
| Company. Also, if you requested NO impounds | | | | than it would otherwise be. If you only plan |
| and the Mortgage Broker put them in anyway, | | | | to keep the mortgage for the fixed period, |
| you'll see it right away because the prepaid | | | | don't spend too much time on the APR. It'll |
| items will be much higher than previously | | | | be a high number that will probably frustrate |
| disclosed. Keep in mind that some A-paper | | | | and confuse you. Rather, spend more time on |
| lenders offer modest pricing improvements for | | | | the starting interest rate and the closing |
| loans WITH impounds so some Mortgage Brokers | | | | costs required to get that loan. |
| try to sneak them in as a way of improving | | | | |
| the loan's profitability. | | | | Overall, you can expect your loan package to |
| | | | have two sets of instructions; one from the |
| The second section details all the fees paid | | | | lender and the other from escrow. You can |
| to OR through the Title or Escrow Company. | | | | expect all the documents we've discussed as |
| These would include the title insurance, | | | | well as a long list of individual affidavits |
| escrow fees, recording, courier, | | | | including a Signature Name Affidavit, a |
| endorsements, notary and any liens or | | | | Compliance Agreement, an Occupancy & |
| delinquent taxes listed on the title report. | | | | Financial Status Affidavit and various |
| Although the signing is often too late for | | | | disclosures describing your rights in the |
| negotiation, both the title insurance AND the | | | | transaction. |
| escrow fee may have some flexibility so it | | | | |
| never hurts to request a discount. | | | | Keep in mind that any refinance transaction |
| | | | in California provides borrowers 3 business |
| At the bottom of the Estimated Closing | | | | days to review all the documentation and |
| Statement, it should tell you exactly how | | | | cancel the transaction if necessary. This |
| much you still owe to close escrow or how | | | | time is provided for your protection. Take |
| much you can expect back after the | | | | the opportunity to review all the documents. |
| transaction closes. Although this figure will | | | | I know it probably all seems confusing or |
| rarely be identical to the Good Faith | | | | even boring, but you'll learn a lot about the |
| Estimate, it's proximity to the original | | | | process by reading the documents involved. I |
| figure is an extremely good gauge of you | | | | know I did when I still had my signing |
| Mortgage Broker's competence and experience. | | | | business, and now I'm doing loans full time. |
| If it's way off, you might want to think | | | | You never know where this stuff leads. |