Loan Closing Documents and Procedures

Loan Closing Documents and Procedures

• Borrowers sign numerous documents at closing, including disclosures, contracts, explanations, settlement documents, and title transfer paperwork.
• Key mortgage loan documents include the final Uniform Residential Loan Application (URLA), the Note, and the Security Instrument (Mortgage or Deed of Trust).
• The final URLA reflects updated loan details and ensures accuracy.
• The Note defines loan terms and borrower obligations.
• The Security Instrument pledges the property as collateral. It references the deed and records the mortgage.
• Defaults allow lenders to foreclose and take possession.
• Assumable loans have clauses specifying terms.
• Non-assumable loans have due-on-sale clauses, triggering immediate repayment if ownership transfers without lender consent.
• Everyone in the title must sign. State laws differ; some protect spouses' real estate rights.
• Title searches ensure all parties with property interests are known.

Escrow and Prepaid Expenses

• Escrow accounts are often required (e.g., FHA, VA, USDA, conventional loans >80% LTV).
• Initial Escrow Disclosure details monthly escrow payments for the coming year.
• Closing payments include first-year homeowners insurance and taxes.
• Prepaid expenses (including interest) are collected before due dates.
• Property taxes, insurance premiums, mortgage insurance/guaranty premiums, and FHA/USDA fees are collected at closing. Amounts collected for escrow depend on upcoming payments' dates.

Power of Attorney and Rescission Rights

• Power of Attorney allows a designee to sign documents on behalf of a borrower absent at closing.
• Power of Attorney documents specify authority terms and limitations.
• Lenders may have restrictions on Power of Attorney use.
• A deployed service member may use a spouse's Power of Attorney to close on a VA home loan.
• Rescission rights apply to loans that are rescindable.
• Borrowers have three business days to cancel.
• Everyone in title (including those not on the loan) has rescission rights and must be notified.
• Written notifications of rescission must be delivered by midnight of the third business day after consummation, disclosure delivery, or rescission right notice.
• The settlement agent disburses loan proceeds after the rescission period.

Post-Closing Activities

• Closed loan documents return to the lender.
• Post-closing activities include sending notices, accepted commitments, certifications, and premium payments to insurers/guarantors.
• Servicing-related communications (e.g., transfer notices, first payment notices) are sent.
• Computer entries for loan servicing begin.
• "Trailing documents" (e.g., recorded mortgage, title policy, accounting) are tracked.
• Loan purchase/funding records, secondary-market purchaser payments, and investor disbursements are reconciled.