Signing The Loan Documents

Signing The Loan Documents

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

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