Mortgage Closing and Settlement 1 — Questions and Answers
Question 1: Which document provides borrowers with their final loan terms and closing costs at least 3 business days before consummation?
- Good Faith Estimate
- Closing Disclosure (Correct answer)
- Loan Estimate
- HUD-1 Settlement Statement
Correct answer: Closing Disclosure
The Closing Disclosure, required under TRID, must be provided at least 3 business days before consummation so borrowers can review final terms.
Question 2: What is the right of rescission in a mortgage transaction?
- The lender's right to cancel the loan if the borrower's credit changes
- The borrower's right to cancel certain refinance transactions within 3 business days of consummation (Correct answer)
- The seller's right to back out of the sale after signing
- The title company's right to delay disbursement
Correct answer: The borrower's right to cancel certain refinance transactions within 3 business days of consummation
The right of rescission under TILA gives borrowers 3 business days after consummation to cancel certain non-purchase mortgage transactions, such as refinances.
Question 3: Who typically conducts the closing of a real estate transaction?
- The borrower's real estate agent
- The lender's loan officer
- An escrow officer, title company representative, or attorney (Correct answer)
- The property appraiser
Correct answer: An escrow officer, title company representative, or attorney
Closings are typically conducted by a neutral third party such as an escrow officer, title company, or attorney, depending on state law and local custom.
Question 4: What is a 'dry closing'?
- A closing conducted entirely online without a notary
- A closing where documents are signed but funds are not disbursed at the time of signing (Correct answer)
- A closing held in a state that prohibits escrow accounts
- A closing where the buyer submits a cashier's check instead of a wire
Correct answer: A closing where documents are signed but funds are not disbursed at the time of signing
In a dry closing, all documents are signed but the actual disbursement of funds is delayed until certain conditions are met, common in some western states.
Question 5: What does 'cash to close' represent on the Closing Disclosure?
- The total loan amount approved by the lender
- The total amount the borrower must bring to the closing table to complete the transaction (Correct answer)
- The lender's net profit on the loan
- The seller's net proceeds after payoff of their existing mortgage
Correct answer: The total amount the borrower must bring to the closing table to complete the transaction
Cash to close is the total funds the borrower needs to bring to closing, including the down payment, closing costs, minus any credits or deposits already paid.
Question 6: Under RESPA and TRID, how many business days before consummation must a lender provide the Closing Disclosure?
- 1 business day
- 2 business days
- 3 business days (Correct answer)
- 5 business days
Correct answer: 3 business days
TRID requires lenders to deliver the Closing Disclosure at least 3 business days before consummation, giving borrowers time to review final terms.
Question 7: What is the primary purpose of title insurance in a mortgage transaction?
- To protect the borrower from property damage caused by natural disasters
- To protect against losses arising from defects in the title or disputes over property ownership (Correct answer)
- To insure the lender against borrower default on the loan
- To cover the cost of property taxes if the borrower becomes delinquent
Correct answer: To protect against losses arising from defects in the title or disputes over property ownership
Title insurance protects lenders and/or owners against financial losses from title defects, liens, encumbrances, or ownership disputes that existed prior to the policy date.
Mortgage Closing and Settlement 1
Which document provides borrowers with their final loan terms and closing costs at least 3 business days before consummation?