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Post-License Ch.12 Summary Notes
At Time of Application
When a borrower first applies for a mortgage, the lender is required to give her a Loan Estimate. It must be given to a borrower at the time of application or within three business days. The lender must also give a Mortgage Servicing Disclosure.
Before the Closing
TRID requires that the Closing Disclosure be given to the borrower at least three business days before the date of the closing.
The Affiliated Business Arrangement Disclosure must be given if the closing agency has referred the buyer to a person that is beneficial to the closing agency.
At the Closing
The Closing Disclosure that was given to the buyer before the closing is also part of the final closing package. Both buyer and seller receive a copy.
The buyer must also be presented with an Initial Escrow Statement that gives a detailed account of the costs that will be charged against the escrow account in the first year.
After the Closing
Once a year, the borrower must receive an Escrow Statement from whoever is servicing the loan.
Requiring this type of disclosure protects the borrower from being overcharged or maintaining a negative balance in an escrow account.
It’s common practice for lenders to sell servicing of loans to third parties.
Other RESPA Statutes
RESPA’s Section 8 forbids agents from giving and receiving of any type of compensation for referrals.
If a seller requires that a buyer use a particular title company, he can be sued for up to three times the total cost of the title insurance.
Though an escrow account isn’t always required, it is sometimes a necessary condition of a loan.
Sales contract signed by both the buyer and seller;
Income, Asset and Debt verification
Checking and savings account information.
Underwriting is essentially an evaluation of risk.
The lender will take all of the documentation provided by the applicant and conduct a thorough evaluation of his “creditworthiness.”
The credit report gives lenders a general idea of an applicant’s likelihood to repay a mortgage loan and to make payments on time.
A person’s overall credit score is based on the collective data contained in the reports from all three reporting agencies.
Those who fall below 620 in the FICO score are considered a greater risk.
Determining someone’s credit score: length of credit history, payment history, amount owed, recent inquiries, and type of credit.
An applicant’s debt-to-income ratio also significantly affects his likelihood of being approved for a mortgage.
If the applicant is married, his wife’s income can be taken into consideration as well.
Some applicants will want to include overtime as part of their income.
A marketable title is typically secured in one of two ways. Either a mortgage company will order a title survey and opinion, or title insurance will be required.
A full title report includes ownership history, tax information, and information regarding any encumbrances or liens against the property.
If a defect is found, the title is not considered marketable until the defect is resolved.
Most title defects are easily cleared by paying an overdue account or back taxes.
Title insurance protects both the lender and the buyer against any unforeseen problems that may be missed by a title survey and opinion.
The insurance typically covers either the value of the home or the mortgage amount, whichever is less.
Title insurance that’s offered by an ALTA member covers the costs required to clear title defects.
The appraiser will consider the home’s condition, functionality, and quality.
The final appraised value of the house will be evaluated by the lender who will use either the appraised value or the sale price of the home to determine its value as collateral.