Loan Closing Documents & Procedures

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Questions and Answers

What is the purpose of the final URLA?

To provide the initial approval for the loan amount.

To outline the monthly payment structure of the loan.

To finalize the property title transfer process.

To attest to the accuracy of the updated loan information. (correct)

What does the Security Instrument represent in the mortgage process?

It is a record of the borrower's income verification.

It acts as an agreement between two parties for loan repayment.

It is a document that describes the loan terms in detail.

It serves to pledge the property as collateral for the loan. (correct)

What happens if the loan has a due on sale clause?

The loan can be transferred without lender approval.

The loan becomes assumable by anyone interested.

The borrower must pay the loan in full upon transferring property ownership. (correct)

The lender must approve all property transactions.

Which of the following documents is often required for FHA, VA, USDA, and GSE loans over 80% LTV?

The Initial Escrow Disclosure (C) Signup and view all the answers

Who must sign the Security Instrument?

All individuals with a legal interest in the property. (C) Signup and view all the answers

What is the consequence of the borrower defaulting on the loan?

The lender can foreclose and take possession of the property. (D) Signup and view all the answers

What does an assumption clause in the Security Instrument specify?

It details the terms under which the loan can be assumed by another party. (A) Signup and view all the answers

In which scenario would spouses have rights to a property even if not on the deed?

In some states due to dower rights or community property laws. (A) Signup and view all the answers

What are 'Prepaid' expenses in a home loan transaction?

Expenses collected at closing and paid before they are due. (D) Signup and view all the answers

How many months of hazard insurance premium are usually collected at closing?

Two months. (A) Signup and view all the answers

What is required for a borrower to rescind a transaction after signing?

Notify the creditor in writing by midnight of the third business day. (B) Signup and view all the answers

Who can grant Power of Attorney in a home loan transaction?

The borrower can designate another individual to sign on their behalf. (C) Signup and view all the answers

What must the settlement agent do after closing and disbursement?

Complete various post-closing activities and send notifications. (A) Signup and view all the answers

What is the valid definition of a business day in the context of rescission rights?

Only weekdays, excluding legal public holidays. (C) Signup and view all the answers

During escrow account setup, which of the following may affect the amount of property taxes collected?

The timing of the next tax bill due. (C) Signup and view all the answers

What is the maximum amount for PMI collected at closing?

Two months of the renewal premium, but could also be zero. (A) Signup and view all the answers

What happens to closed loan documents after the transaction?

They are returned to the lender for post-closing activities. (D) Signup and view all the answers

Which of these entities may have policies on the use of Power of Attorney?

Lenders, guarantors, and mortgage insurers. (A) Signup and view all the answers

Study Notes

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.

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Description

This quiz covers the essential loan closing documents and procedures involved in real estate transactions. Learn about key documents such as the Final Uniform Residential Loan Application, the Note, and the Security Instrument, and understand the roles of all parties involved. Test your knowledge on title searches and state laws that influence the closing process.