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We’re Ready to sign Documents


Having survived the escrow procedures and the escrow period you are almost done because the most important part of the procedure is yet to come.  That is the signing of the documents.  Remember as a buyer once you sign those documents you have a legal and binding document and you’ve now created an obligation for yourself and your family.  Normally you will be sitting down with either an escrow officer, loan officer, notary, and possibly others or any combo of those mentioned.  Your attention at this point is very important because they are going to basically cover your home loan package which basically is your entire purchase transaction.  One of the things that came out as a result of the mortgage market collapse was that borrowers need to understand the documents they are signing, at least the most pertinent parts.  Needless to say if you have questions you will want to make sure you ask them.  Just because the escrow officer, notary or loan officer explain what you’re signing does not mean that you don’t need to read it. Remember that this is your home and as such is likely the biggest and most important investment you will make in your life.  Plus they are getting paid to explain this to you.  Don’t let them rush you, you’re the one who is going to have to make the payments!  One suggestion may be to request to read the documents prior to signing so you have a chance to read them on your own and then you don’t have the pressure element which is so many times associated with signing docs. first time home buyer

Many of the documents you will review and sign are not going to be things you will need to retain because again there are a lot of required disclosures which really don’t have a direct impact on your loan but are required with certain types of loans.  On the other hand, you really need to pay attention to certain documents and top on that list is the Note.   At two or three pages it’s not that much so make certain you read this above and beyond all the other docs.  By signing this doc you secure the interest rate, length of loan and any other important terms.  The other important doc is the Deed of Trust or Mortgage.  This outlines the lenders rights in servicing your loan as well as outlining your right’s as the borrower paying the loan.  If you read no other docs, read these thoroughly.

I would also urge you to read the HUD 1 which is also known as the HUD Settlement Statement.  This form is the final summation of all the costs and credits associated with the successful completion of the home loan process.  Some of the things this form tells you are first how much money you will need to bring in to closing and you’ll want to know in what form(wire transfer, cashiers check, etc) the funds will be acceptable to the escrow company. You might consider taking the original Good Faith Estimate which you received at the start of the loan process from your loan officer and not that you’ll have huge discrepancies but at least you have something to reference should you have questions.  Many times a source of confusion, it is really important to understand everything on the HUD 1 form.  Again, if you have any questions don’t hesitate to ask.

 

Amongst the multitude of other documents are a few other important docs;

 

The Truth-in-Lending Statement
This is a government required document that shows the actual cost of the loan expressed as what they call Annual Percentage Rate(APR).  Included in this disclosure are the interest rate of the loan, the finance charges you’ll incur if you keep the mortgage for the entire term of the home loan. Basically the APR represents the interest rate expressed as a rate of interest that includes the fees and points.

The Title
Done as a part of the transaction to insure the title is not clouded.  What they are looking at is to make sure there are no liens, judgments, mortgages, mechanic liens or any other type of claims against the property. If any are found they will have to be dealt with before the transaction can continue or be completed.

Title Insurance
This is what basically guarantees the research that was done by the title company and gives an insurance against any subsequent claims which are discovered.  Most lenders are going to require this as a condition of doing the home loan.  There is an interesting interview with a Title Rep, Chip Brinks, on the Radio archive portion of this website.  If you’d like to learn more you might want to listen, a lot of useful information.

Proof of Insurance
One of the lender requirements is going to be the Evidence of Insurance which protects the property in the event of an incident which might affect the value of the subject property such as fire, vandalism, etc.  Normally you will be having your insurance company work directly with the escrow company to provide the documentation that escrow  will need.

 

During this process an area which is often times overlooked are escrow or impound accounts.  Now if your loan is not using one then this does not apply to you.  If you do and many loans these days do have that requirement, this is extremely important. The reason it is required is because you don’t yet have enough equity in your home, and the bank wants to make sure that you keep current on insurance and taxes and possibly mortgage insurance. Sometimes loan officers will do deceptive things with the escrow account to make it appear like you are getting a smaller monthly payment. Prior to signing your home loan you need to understand every part of your monthly payment. A little advice, one of your concerns as a borrower is what your total payment will be so really review this.  Several components make up your monthly payments, the principal and interest, hazard insurance, property taxes, and if applicable mortgage insurance all on a monthly basis.  You can check with the tax assessor in your area and find out what the average tax rate is for instance and apply that to your sales price.  Many times your Realtor or escrow officer can also assist you to get that rate. 

 

As an example if your tax rate is 1.25% and your agreed sale price is $300,000, take $300,000 and multiply by 1.25% and you would get $3,750.  That is your annual tax obligation so divide that by 12 and you would get $312.50 on a monthly basis.   To figure your monthly hazard insurance take your annual premium, say $600, and divide by 12 months which equals $50 per month.  There is the insurance component.  If you have mortgage insurance ask your lender what the monthly payment will be and they should be happy to calculate that for you.  I would personally not look at signing docs until I had all that from the loan officer.  Add this up and make sure your monthly payment you’ve been quoted will cover this.  For instance, let’s say the loan officer tells you that your payment will be $2,000 a month, and $297 of that is towards the escrow account which will take care of the property taxes, hazard insurance and mortgage insurance.  Using the previous example we figured the monthly property tax to be $312.50 so right there you know something doesn’t add up because they’re telling you $297 is going to cover all those items and it won’t. If you figure hazard insurance at $50 per month, and the cost of mortgage insurance at least $130 per month, chances are you’re going to have a negative balance at some future time.  The way that gets taken care of is up to the servicer of the loan.  They could ask you to pay the deficiency all at once or possibly give you a notice and increase the payment to first of all adjust the payment to the proper level and also make up the negative which could create a huge bump in your payment for a temporary period of time and then of course after the deficiency is paid back adjust to what should’ve been your correct payment all along. 

 

A couple of other issues you need to be aware of are Supplemental Taxes and Mello Roos Community Facilities District taxes at least in the State of California.  These topics can get very complicated but your mortgage professional will be able to explain them to you.  If you’re purchasing a brand new home make sure somebody explains Supplemental Taxes to your satisfaction because you might have to budget some money for the future in anticipation of getting that bill.  The other issue that might be of concern and is not universal to all areas is the Mello-Roos Community Facilities District tax.  This is something which can recur and be fairly substantial and should be disclosed.  It wouldn’t hurt to ask your Real Estate Professional if a property you’re considering has Mello-Roos fees.  As always, I urge you to ask questions because that information is for your benefit.

 

After you’ve signed the documents they will be reviewed by the escrow officer to make sure everything is ready for the lender and at that point is sent back to the lender, normally sent overnight.  At that point the lender will review the file and get any remaining conditions that the investor will require and assuming all conditions are signed off, put the loan in line for funding.  By definition funding describes the process of wiring money from the mortgage lender to the Title Company or the escrow company prior to the closing of the real estate transaction.  Keep in mind one thing and that is that interest is charged from the day of funding and not from the date of closing.  Should you fund on say a Friday or prior to a Holiday, you will pay interest for the weekend or Holiday because funding often occurs a day or two before closing so make sure you discuss this with your loan officer or escrow officer to make sure you don’t pay interest needlessly.  Every dollar counts!

 

Hopefully these steps will be of help to you and perhaps even save you some money and trouble.  This website will be continuously updated with any other bits of information I think might help you so please visit regularly and tell your friends and relatives to give us a visit and use these resources to help them too.  These items are just scratching the surface of the home loan process and each scenario is a little or a lot different from the next so please don’t hesitate to contact me on any specific questions you may have. 

 

Thank you for taking the time to visit my sight and using the tools I’m proud to make available to you.  Should you have any suggestions on anything I can do to make it more helpful to you please don’t hesitate to contact me.