So you get the call from your agent that the title company has received the loan documents and needs to set up an appointment. Lucky you! If you are a first time home buyer, everyone tells you to "get ready to sign your life away" or "man is your wrist going to tired from all that signing" or "be prepared for a hour of misery" and so on and so on. My goal with this post is to "dissect the loan package", and take away as much anxiety as I can. I have over 6000 loan signings under my belt, and the average person may do 10 in a lifetime. A skilled signer should be able to get you through the package in about 30 minutes.
Every lender is a bit different, but the package I will dissect below is representative of most lender document packages. Please bear in mind I am not a lender or an attorney, just a title guy that sees these documents every day. Always consult your lender or an attorney for specific questions regarding any loan document you sign, With the disclaimer out of the way, away we go!
Lender’s Instructions – These instruct the Escrow Officer and title company on how the lender wants the fees displayed on the settlement statement, how documents are to be processed, and where and when title policies are to be delivered.
Note – Borrowers promise to pay (actual language from the note – you are making a promise!) the principal of the loan along with interest on unpaid principal over a specific term. 30 years is the most common term. Due dates, late fees, and how you will be notified if late are also detailed.
Deed of Trust– The 800 pound gorilla of the loan package. This is a "Security Instrument" for the lender. What are they securing? The amount of the loan provided to purchase the home. What is being used to secure the amount of the loan? That’s right, the property. In Arizona, when this document records with the county, the transfer of the property is final and the house is yours!
Notice of Assignment, Sale, or Transfer of Servicing Rights – This document discloses who your lender has sold or transferred your loan to. Many lenders do not service the loans they originate. They sell them to banks and servicing companies that will then collect the monthly payment. It’s nothing personal if your loan is transferred. It happens most of the time. If your loan is sold, the terms cannot change. The only change is where the payment is sent.
Truth-in-Lending Disclosure Statement – Most confusing of the package the "TIL" ( a little insider slang for you) simply states that you did not get the loan for free. You paid fees to a broker, lender, title company, etc in order to obtain the loan. These fees are then converted into the APR. Remember, the APR is not your interest rate. It is a number created by the government to help you compare one lender to another.
Itemization of Amount Financed – This is page 2 of the TIL. It is a breakdown of the fees used to calculate your APR.
Name and Signature Affidavit – You are swearing and affirming that your correct name is on the documents. You also may be asked to affirm that variations of your name found in the public record are also you.
Initial Escrow Account Disclosure Statement – A breakdown by month of the amounts from your PITI (principal, interest, taxes, and insurance) monthly payment that are directed to your escrow account with the lender. The lender uses these funds to pay your property tax bill, homeowners insurance, and if required, private mortgage insurance. Disbursements from this account are also detailed.
First Payment Letter/Temporary Payment Coupons – Pretty self-explanatory… This form breaks down the payment and shows the first payment date and where it is to be mailed.
Acceptance Agreement and Hold Harmless – You confirm that you accept the property and have done any necessary inspections, The lender is also held "harmless" from any responsibility regarding the property or its condition.
Borrower’s Certificate and Authorization – You certify you have provided truthful and accurate information to the lender and authorize the lender to re-verify any of that information.
IRS Form 4506 – This form is good for 60 days from the day it is signed and dated. The lender may use this form to obtain copies of certain tax records, like W-2’s or 1040’s directly from the IRS. Why? To compare the documents the you submitted with the actual documents on file with the IRS. It is a fraud fighting tool.
IRS Form W-9 – You sign and date certifying you have provided the correct social security number.
Appraisal Disclosure – Let’s you know you have a right to a copy of the appraisal for their new home.
Servicing Disclosure Statement – Lender will provide to you the odds, if you will, of them retaining the loan vs. selling or transferring the loan to another lender.
Notice of Flood Hazards – Let’s you know if you are in a flood zone. If you are (a rare occurrence in Phoenix Metro area), flood insurance will be required.
Errors and Omissions/Compliance Agreement – Basically a CYA from for the lender. If they need help correcting the loan package, you agree to comply and help the lender.
Authorization To Complete Blank Spaces – Allows the lender, broker or escrow to fill in any spaces you may have left blank. This obviously does not include your signature!
Notice Regarding Furnishing of Negative Information – Basically states that late payments are bad!
First Lien Letter – Title company insures that lender will be in first lien position on the property.
Occupancy Affidavit and Financial Status – You agree to occupy the home (if owner occupied financing is being obtained) and state that your financial situation has not significantly changed since you first applied for the loan.
Address Certification – You certify the address you want lender correspondence mailed to.
Credit Score Disclosure Statement – Lender is required to provide a credit score summation to you.
HUD-1 Addendum – You agree you have carefully reviewed the settlement statement disclosing all the fees in the transaction.
USA Patriot Act Form – Notary will acknowledge the types of ID used to identify you.
Quality Control Release – You agree to assist the lender if they do an internal review of the file
Tax Information Form – Filled out by Escrow Officer to provide lender with proper parcel number and mailing address for county taxes.
Loan Application – Called a "1003 or "Ten OH 3" (more cool lender slang), this is your loan application. A final version is signed with the loan package.
As I mentioned at the start, your loan package may have a couple more or a couple less documents, but this is a pretty standard package. If you are getting an FHA loan, there will be a few more documents strictly related to the FHA program. Same applies to VA loans.
Now, empowered with the knowledge of what you are about to face, you can go strongly into the title company conference room, securely knowing that you will tame the mighty loan package, and impress your escrow officer at the same time!!
About the Author: Bill Risser is an Assistant Vice President and Branch Manager of the Chicago Title ”“ Gilbert office. You can find him at ChicagoTitle-Gilbert.com and on Twitter at @billrisser, that is, when he’s not on a local golf course with his son, at the movies with his wife, or tending to one of his four fantasy leagues (NFL, MLB, PGA, and NASCAR).