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