Loan Closing Documents & Procedures

Loan Closing Documents & Procedures

• Borrowers sign numerous closing documents, including disclosures, contract details, seller/purchase settlement documents, and title transfer paperwork.
• Key mortgage loan documents include:
  • The Final Uniform Residential Loan Application (URLA): An updated version of the initial application, attesting to accuracy by borrower and loan officer (MLO).
  • The Note: The legal agreement outlining loan terms and borrower repayment obligations.
  • The Security Instrument (Mortgage or Deed of Trust): Pledges the property as collateral, referencing the recorded deed, and enabling lender foreclosure in default. Includes clauses for loan assumption or due-on-sale situations.
• All parties in title must sign the security instrument, regardless of whether they are on the loan. State laws (e.g., dower rights, community property) might give spouses additional rights.
• Title Search: Ensures accurate identification of all parties with interests in the property.
• Escrow Account: Required for FHA, VA, USDA, and certain conventional loans over 80% Loan-to-Value (LTV).
  • Includes property taxes and homeowners insurance (typically two months premium).
  • PMI/MIP/USDA guarantee fees are also collected at closing depending on plan and loan type. Prepaid amounts are collected for payments that will occur in future months, like insurance or taxes.
• Power of Attorney: Allows a designated individual to sign documents on behalf of a borrower unable to attend closing. Lenders may have specific requirements/guidelines for Power of Attorney.
• Right to Cancel (Rescission) : Applies to loans where a borrower is obtaining new debt on their primary residence.
  • Borrowers have 3 business days to cancel the transaction.
  • Applies to all parties in title (even those not on the loan) who received proper notice and signed a rescission agreement.
  • Required notice/disclosures need delivery for rescission to be valid. Consummation (signing the note), delivery of disclosures (also in the Closing Disclosure, CD), and receipt of the right-to-cancel notice need to be documented.
• Post-Closing Activities:
  • Loan proceeds disbursed on the business day following rescission period expiration.
  • Lender receives closed documents and completes post-closing actions.
  • Notices, accepted commitments, and certifications are sent (hardcopy, online, or both). Insurer premiums are paid.
  • Required notices/disclosures are sent to the borrower.
  • Loan servicing is initiated.
  • “Trailing Documents” (recorded mortgage/deed of trust, final title policy, disbursement accounting) are tracked and provided later.
• Secondary market loan purchase completion and payment disbursal are documented and reconciled.