By Sandy Gadow
When you sit down for your closing, whether it is at a title company, an escrow office, an attorney's office, or any other location, you will be asked to sign a number of documents. Among those documents will be your loan papers, if you are taking out a loan, which the lender submitted to your escrow or closing agent. Several of these documents you may be viewing for the first time. Can your escrow officer review these documents with you?
If you have an attorney present at your closing, he or she will normally explain the loan documents to you, together with your other escrow papers. In many areas of the country, attorneys are not normally present at the closing, unless there are special circumstances which require legal opinions. You may be responsible for signing the loan documents on your own and there are several safeguards you should take before signing these legally binding documents. You may ask the escrow officer attending the closing questions regarding the general provisions of the loan papers. She can explain general terms such as points, origination fees, prepaid interest, underwriting and processing fees to you. She can explain appraisal fees, credit report fees and tax service fees. By definition, an escrow officer serves as an impartial third party in the transaction, favoring neither buyer, seller or lender, so she cannot give legal advice or render opinions.
If you have specific questions on your loan documents, such as how the prepayment penalty on your loan will work, or how the PMI (Private Mortgage Insurance) will be calculated, you should ask your lender prior to your closing day. Before you go to your closing, be clear as to how your interest rate will be calculated, whether it is a fixed rate loan, an adjustable rate mortgage, or a combination of the two. Be sure to understand how the escrow reserve account will be funded. Will the lender be collecting a monthly amount for insurance and taxes? You will want to understand how the reserve account will be handled, whether or not you will be allowed to cancel this option at some point during the life of the loan, and if the reserve amount can be raised, and if so, how often and by how much. What guidelines must your lender follow to notify you of an increase in the escrow reserves collected?
To protect yourself against any unexpected loan expenses or clauses found in your note or mortgage documents, ask the escrow officer or lender for a copy of the HUD-1 Statement at least one day prior to your closing day. Carefully compare the costs listed on the HUD-1 Statement with those fees which were listed on the Good Faith Estimate which was given to you when you initially applied for your loan. The fixed expenses, such as the points, origination fees, underwriting and processing fees should be the same. The appraisal fee, credit report fee or lender's inspection fee may vary somewhat from your original estimate. You may see an added courier or wire transfer fee, which is common, as the lender will generally either courier or wire their loan proceeds to the escrow agent. The amounts listed under the prepaid interest or other proration amounts for insurance and taxes, may vary from your Good Faith Estimate. Calculate those charges yourself, to be certain that they are correct.
You may want to ask your lender if your loan will be sold in the secondary market and who will service your loan. Ask your lender for the address of where to contact them in the future in the event you have questions or concerns about your loan or the processing of your loan payments. This could prove to be valuable information when you want to contest or question a specific requirement regarding your loan.
Your loan documents are the most important papers that you will be asked to sign at closing. They will be legally binding, and may cover a 15 or 30 year period. Understand their terms and conditions thoroughly before you sign. Don't be afraid to ask the escrow officer to call the lender if you find there are still unanswered questions at the time of closing. Before signing, resolve any questions, to be sure that your understand your obligations under the note and mortgage or deed of trust. Your escrow officer is there to guide you to the correct source for answers to your questions. Don't rely on second hand opinions or advice in these important financial obligations.
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