Mortgage Process 4 â Questions and Answers
Question 1: What is 'cash to close' and what does it typically include?
- Only the down payment amount
- The total funds the buyer must bring to closing, including down payment, closing costs, and prepaid items minus any credits (Correct answer)
- The lender's origination fee only
- The first month's mortgage payment
Correct answer: The total funds the buyer must bring to closing, including down payment, closing costs, and prepaid items minus any credits
Cash to close is the total out-of-pocket amount required from the buyer at settlement, encompassing the down payment, closing costs, prepaid expenses, and any adjustments.
Question 2: What is the purpose of an escrow impound account in a mortgage?
- To hold the earnest money deposit until closing
- To collect and pay property taxes and insurance on behalf of the borrower (Correct answer)
- To store the original loan documents
- To fund mortgage payments if the borrower is late
Correct answer: To collect and pay property taxes and insurance on behalf of the borrower
An escrow impound account collects a portion of property taxes and insurance premiums monthly so the lender can pay these bills when due, protecting the collateral.
Question 3: When must a lender return a borrower's appraisal report?
- Only after the loan closes
- At least three business days before closing (Correct answer)
- Within 30 days of loan denial
- Only if the borrower requests it in writing after funding
Correct answer: At least three business days before closing
Under the Equal Credit Opportunity Act, lenders must provide applicants a copy of the appraisal promptly and no later than three business days before closing.
Question 4: What is a 'funding condition' in the final stages of the mortgage process?
- A requirement the appraiser must meet before issuing the report
- A last-minute lender requirement that must be satisfied before loan funds are disbursed (Correct answer)
- The condition of the property as noted in the inspection
- A title company's standard fee schedule
Correct answer: A last-minute lender requirement that must be satisfied before loan funds are disbursed
Funding conditions are final itemsâsuch as signed closing documents, proof of insurance, or updated verificationâthat must be cleared before the lender releases loan funds.
Question 5: What is the 'right of rescission' and which mortgage type does it apply to?
- The right to cancel any mortgage within 30 days for any reason
- A three-business-day right to cancel that applies to refinances of primary residences (Correct answer)
- The lender's right to call the loan due immediately
- A buyer's right to renegotiate the purchase price after appraisal
Correct answer: A three-business-day right to cancel that applies to refinances of primary residences
Under TILA, borrowers refinancing their primary residence have three business days to rescind the transaction without penalty; this right does not apply to purchase loans.
Question 6: What does 'wet settlement' mean compared to 'dry settlement' in a mortgage closing?
- Wet = title insurance is included; Dry = title insurance is purchased separately
- Wet = loan funds are disbursed the same day as closing; Dry = funds are disbursed after a review period (Correct answer)
- Wet = closing occurs in person; Dry = closing is handled remotely
- Wet = the buyer pays cash; Dry = the buyer uses financing
Correct answer: Wet = loan funds are disbursed the same day as closing; Dry = funds are disbursed after a review period
In a wet settlement, all documents are signed and funds disbursed on the same day; in a dry settlement, disbursement is delayed until documents are reviewed and recorded.
Question 7: What is 'mortgage servicing' and when does it begin?
- The process of originating a mortgage, which begins at application
- The administration of the loan (collecting payments, managing escrow) after the loan closes and funds (Correct answer)
- The lender's review of the borrower's credit report
- The inspection of the property post-closing
Correct answer: The administration of the loan (collecting payments, managing escrow) after the loan closes and funds
Mortgage servicing involves all post-closing loan management activitiesâcollecting payments, handling escrow, and managing delinquenciesâoften performed by a company different from the originating lender.
Mortgage Process 4
What is 'cash to close' and what does it typically include?