Loan Closing Process Overview
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Questions and Answers

When does loan consummation occur?

  • When the borrower receives all required closing documents.
  • When the borrower submits a complete loan application.
  • When the lender issues final approval.
  • When the borrower signs the loan documents and becomes legally obligated to the lender. (correct)

    • What is the minimum waiting period a borrower must have before loan consummation after receiving the Closing Disclosure (CD)?

  • 1 business day
  • 3 business days (correct)
  • 7 calendar days
  • 2 business days

    • Which of the following events triggers a new 3-day waiting period before loan consummation?

  • An increase in the APR by more than 0.125%. (correct)
  • A decrease in the loan amount.
  • A change in the borrower's employment status.
  • A change in the borrower's credit score.

    • Who typically issues the Closing Disclosure (CD)?

    <p>The lender. (A)</p> Signup and view all the answers

    What is the purpose of the Closing Disclosure (CD)?

    <p>To summarize all fees and charges related to the loan, providing a final accounting of the loan terms. (B)</p> Signup and view all the answers

    What is the role of the settlement agent in the loan closing process?

    <p>To handle the closing paperwork and disbursement of funds. (B)</p> Signup and view all the answers

    When can a revised Closing Disclosure (CD) be issued?

    <p>At or before loan closing, if the initial CD was not completely correct. (A)</p> Signup and view all the answers

    What happens after the lender issues final loan approval?

    <p>The lender begins the process of preparing closing documents and instructions. (B)</p> Signup and view all the answers

    Which of the following is a common expense that is typically prorated at closing?

    <p>Property taxes (A), Homeowners association fees (B)</p> Signup and view all the answers

    What is a title insurance commitment and what is its purpose?

    <p>A document that outlines the specific exceptions to the title insurance policy that will be issued. (A)</p> Signup and view all the answers

    What is a 'deed of trust' and how does it relate to the closing process?

    <p>A type of mortgage that involves a third party who holds the title to the property until the mortgage is paid off. (A)</p> Signup and view all the answers

    What is meant by 'proration' in relation to a closing?

    <p>The process of adjusting the amount of expenses paid by the seller to reflect the period of ownership. (A)</p> Signup and view all the answers

    Which of the following is NOT an acceptable exception that a lender might accept on a title policy?

    <p>An unresolved claim from a previous owner. (D)</p> Signup and view all the answers

    What role does the settlement agent play in a real estate transaction?

    <p>They coordinate the closing process by handling documents, funds, and title insurance. (C)</p> Signup and view all the answers

    What is the main difference between 'round-table' and 'escrow' closing?

    <p>Round-table closing funds are paid directly to the seller at closing, whereas escrow closing funds are held by a neutral third party. (A)</p> Signup and view all the answers

    What is the purpose of a title policy?

    <p>To protect the buyer from financial loss due to defects in the title. (B)</p> Signup and view all the answers

    What is the purpose of recording documents in the public records after closing?

    <p>To ensure that the buyer has a legal right to the property. (C), To protect the lender's interest in the property by creating a public record of their mortgage. (D)</p> Signup and view all the answers

    What is the role of a title agent in resolving title issues?

    <p>They determine the best course of action for resolving the issue based on the lender's requirements. (C)</p> Signup and view all the answers

    What is the main purpose of a lender's title insurance policy?

    <p>To protect the lender against loss due to defects in the property's title. (A)</p> Signup and view all the answers

    Which of the following is an example of an exception to a title policy that could be unacceptable to a lender?

    <p>An unresolved claim from a previous owner regarding ownership of a portion of the property. (D)</p> Signup and view all the answers

    What is the purpose of subordination in the context of mortgages?

    <p>To prioritize the lender's claim on the property over another mortgage. (B)</p> Signup and view all the answers

    What is the main difference between Owner's Title Insurance and Lender's Title Insurance?

    <p>Owner's Title Insurance protects the buyer, while Lender's Title Insurance protects the loan. (D)</p> Signup and view all the answers

    When must the Title Insurance Commitment be provided for the lender to review before closing?

    <p>Before the closing date. (C)</p> Signup and view all the answers

    Study Notes

    Loan Closing Process

    • Loan approval triggers the closing phase. Some companies have dedicated closing specialists; others use the same staff throughout. Brokers may hand off applications to the lender after approval.
    • The Closing Disclosure (CD) is issued soon after approval. It's the final disclosure of transaction details and fees, replacing the Loan Estimate (LE).
    • Borrowers must receive the CD for review at least 3 business days before consummation, when the borrower's contractual obligation begins. Business days exclude weekends and public holidays.
    • A revised Loan Estimate (LE) cannot be issued after the CD. At least one day must elapse between the last LE and the CD.
    • Sellers also receive a CD.
    • If changes occur, a revised CD must be provided before or at closing.
    • A 3-day waiting period is required if the APR rises by a point, or if the loan type changes (e.g., fixed to ARM), or if a prepayment penalty is added.

    Settlement Agent Role

    • Settlement agents (typically title insurance companies or attorneys), work with the lender throughout processing, regarding title reports, fees, etc.
    • After final approval, closing instructions are issued.
    • The settlement agent gathers all required mortgage and related documents.
    • They calculate prorations (e.g., taxes), adjustments, and fees affecting each party
    • Prorated expenses are determined before the CD is issued and affect the final closing costs.
    • Agents search public records for title insurance.
    • The Title Commitment (for the lender's review) outlines the title insurance company's obligations and exceptions.
    • Exceptions (like liens, easements, leases, previous mortgages, restrictive covenants, mineral rights, encroachments), that need to be cleared by endorsements, waivers, or payments.
    • Unacceptable title exceptions (e.g., unresolved claims, significant encroachments, or recorded leases) may prevent a transaction from closing, until addressed.
    • Mortgages paid from the loan proceeds are shown on the Commitment but not on the final title policy.
    • Title Agents handle resolution of potential title issues.

    Closing Procedures

    • Closing methods vary regionally. Some involve a single "round-table" meeting or multiple "escrow" meetings.
    • Borrowers provide closing funds (in a certified check or escrow account depending on the method). .
    • Funds are disbursed based on the CD and closing instructions.
    • Documents like deeds, mortgages, and reconveyances are recorded.
    • Ensuring the first mortgage is properly recorded (in priority, or subordinating any secondary mortgages).
    • Purchase money seconds (piggyback) second mortgages, require special attention to the recording sequence
    • Title Insurance Policy can be delivered to the lender, optionally prior, or after closing.

    Insurance Considerations

    • Title insurance protects lenders against title issues.
    • Owner's title insurance, an option to cover the borrower.

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    Description

    This quiz covers the essential steps involved in the loan closing process, highlighting the roles of closing specialists and settlement agents. You will learn about important documents like the Closing Disclosure (CD) and the requirements surrounding them. Additionally, key timelines and conditions for revisions and borrower obligations will be explored.

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