Closing and Settlement Flashcards
7 cards from real Mortgage practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Closing and Settlement flashcards as text
What is an escrow account in the context of a mortgage loan?
Answer: An account held by the lender or servicer to collect and pay property taxes and insurance on behalf of the borrower
An escrow account (also called an impound account) is used by the lender to collect monthly portions of property taxes and insurance premiums and pay them when due.
The HUD-1 Settlement Statement was replaced by which document under the TRID rule?
Answer: Closing Disclosure
The TRID rule (effective October 2015) replaced the HUD-1 Settlement Statement and final TIL disclosure with the Closing Disclosure for most residential mortgage loans.
What does 'settlement' mean in the context of a real estate transaction?
Answer: The process where property ownership is officially transferred, funds are disbursed, and all parties receive what they are owed
Settlement (also called closing) is the formal process where title transfers from seller to buyer, the lender disburses loan funds, and all costs are paid.
Which of the following costs is typically NOT paid by the borrower at closing?
Answer: The seller's real estate commission
The seller's real estate commission is paid by the seller from their proceeds; it is not a closing cost obligation of the buyer/borrower.
What is a seller concession (seller credit) at closing?
Answer: An amount the seller agrees to contribute toward the buyer's closing costs, reducing cash needed at closing
A seller concession is a negotiated contribution from the seller to cover some or all of the buyer's closing costs, effectively reducing the cash the buyer needs at settlement.
How is prepaid interest at closing calculated?
Answer: By calculating the per diem interest rate and multiplying by the number of days from closing through the end of the month
Prepaid interest covers the interest accrued from the closing date through the last day of the month, since the first mortgage payment is typically due on the first of the following month.
What is a 'no-closing-cost' mortgage?
Answer: A loan where closing costs are either rolled into the loan balance or offset by the lender through a higher interest rate
In a no-closing-cost mortgage, the borrower does not pay upfront closing costs; instead they accept a higher interest rate (lender credit) or the costs are added to the loan balance.