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Requires impound account for taxes, hazard and mortgage insurance. Types of loans ... Private mortgage insurance (PMI) required for loans greater than 80 ... – PowerPoint PPT presentation

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Chapter 7

Chapter Outline
  • Types of lenders and Types of loans
  • Lender personnel and the loan process
  • Loan Pre-qualification
  • Sending preliminary title report and certified
    escrow instructions
  • Keep in Touch Using the Conversation Log
  • Loan Fees
  • Private mortgage insurance (PMI)(MMI)(MIP)
  • Loan conditions prior to loan docs
  • Loan approval
  • Preparing Loan Docs
  • Good Faith Estimate and Reg. X and Z
  • Funding
  • Trust Deed(s)
  • Buyer affidavit, Contingencies
  • Buyer-caused escrow fall out

Chapter 7
  • At the conclusion of this chapter, you will be
    able to
  • 1)   Understand the relationship between escrow
    and the buyers new lender.
  • 2)   List the components of a Trust Deed.
  • 3)   Outline the steps for escrow to take to meet
    the requirements of the buyers new loan.
  • 4)   Differentiate between various types of buyer
    loans for the requirements for escrow.
  • 5)   Explain the loan process from buyer
    pre-qualification to funding and recordation of
    the documents evidencing the new loan on the

Types of lenders
  • Institutional lenders
  • Loan brokers and loan bankers
  • Private lenders

Types of loans Government LoansFHA loans
  • Ø    No secondary financing at the time of the
    original first trust deed loan.
  • Ø    Minimum 3 from the buyer, of their own
    funds, to close the escrow.
  • Ø    MIP (Mortgage insurance premium) is always
    required, requiring a MIP disclosure.
  • Ø    The seller may pay anything above the 3
    required of the total funds from the buyer.
  • Ø    The FHA loan amount may not exceed the FHA
  • Ø    The maximum loan amount varies in each
    county in California and current information
    may be found at http//
  • Ø    FHA loans charge the buyer a one-time
    up-front premium (UFMIP).
  • Ø   FHA loans charge the buyer an annual renewal
    premium, payable monthly.
  • Ø    The lender requires Certified Escrow
    Instructions from escrow.
  • Ø    Requires impound account for taxes, hazard
    and mortgage insurance.

Types of loans Government Loans DVA loan
  • Ø DVA allows 100 financing with zero cash down
  • Ø DVA loans have a Funding Fee that is determined
    by the type of loan and down payment.
  • Ø DVA allows a second trust deed with a DVA loan,
    so long as the total of all loans does not exceed
    the CRV and the interest rates on the second does
    not exceed the interest rate on the first trust
  • Ø  The seller may pay all of the veterans normal
    closing costs.
  • Ø  The veteran cannot be charged an escrow fee.
  • Ø  Requires impound account for taxes and hazard
  • Ø Closing costs are regulated for what a veteran
    may pay for

Types of loans Government Loans Cal Vet
  • California Department of Veterans Affairs
  • http//

Conventional loans
  • Ø Residential, commercial, industrial
  • Ø LTV up to 95 of appraised value with only 5
    down payment.
  • Ø Impound account for taxes and insurance
    required only if loan is greater than 80 LTV.
  • Ø Interest rates may be fixed, variable, biweekly
    or tied to an independent index.
  • Ø Private mortgage insurance (PMI) required for
    loans greater than 80 LTV.

Finance Terms
  • Jumbo
  • Fixed
  • Variable
  • Adjustable

Lender personnel
  • loan originator
  • loan processor
  • loan servicing

Loan Prequalification
  • Ø  Is the transaction contingent upon the
    appraisal? If so, is it in?
  • Ø  Was the buyer pre-qualified for this
    particular loan? If so, is another loan
    available as a back up should the lender change
    the loan at the terms stated?
  • Ø  Does the buyer have adequate reserves for
    additional closing costs required? Or, for
    additional down payment should the original loan
    desired not be approved?
  • Ø  Does the buyer in this transaction have
    another property that must close escrow prior to
    the close of this transaction?
  • Ø  Are tax exchange benefits important to any
    party to the transaction?

original escrow instructions
  • (1) copy for buyer to sign and return to escrow
    with an original signature
  • (2) copy for the buyer to retain as a copy for
    their records
  • (3) copy for the seller to sign and return to
    escrow with an original signature
  • (4) copy for the seller to retain as a copy for
    their records
  • (5) copy for the real estate brokerage office
    that handles the buyer
  • (6) copy for the real estate brokerage office
    that handles the seller.

The lenders underwriter looks at
  • Prior to loan approval
  • The escrow officer certifies that they have a
    copy of original signatures
  • Is the transaction involving
  • An owner-occupied loan ?
  • A Veterans loan ?
  • Tenant deposits to transfer?

  • Ø     General policy provisions Offer to insure,
    Exceptions, Exclusions.
  • Ø     Schedule A Existing title, Sellers
    name(s), Legal description of the real property,
    and exceptions.
  • Ø     Schedule A-1 wire transfer information,
    beneficiary sign off for loan payoff, Statement
    of Information (SI) required from all parties,
    Existing real property taxes Prorations, No
    conveyance within past six (6) months, The
    physical property address and type of property,
    The title insurance rate that is offered.
  • Ø     Schedule B Taxes, easements, utilities,

The conversation log
  • the paper trail
  • communications skills
  • follow up

Loan fees
  • Cash payment of any loan fees through escrow
  • Financed added into the unpaid loan balance
  • one point equals one percent of the loan amount

Private mortgage insurance (PMI)(MMI)(MIP)
  • LTV is greater than 80 of the appraised value
  • lender will require mortgage insurance
  • up-front mortgage insurance premium (UFMIP)
  • insurance premium is payable monthly together
    with the loan payment
  • monthly premium payment is one-half of one
    percent, or 0.50

FHA loan
  • FHA mortgage insurance premium (MIP)
  • (UFMIP) is 1.5 of the loan amount
  • monthly premium of ½ of 1 of the loan amount,
    divided by 12
  • UFMIP premium, the mortgage insurance is
    calculated at 2.25 of the loan amount.
  • FHA MIP may be financed

conventional loan
  • private mortgage insurance (PMI).
  • 80.01 to 85 Insurance coverage is the top 12
  • 85.01 to 90 Insurance coverage is the top 25
  • 90.01 to 95 Insurance coverage is the top 30

Loan conditions prior to loan docs
  • Ø     Termite clearance final report
  • Ø     Title insurance policy
  • Ø     Flood insurance endorsement
  • Ø     Mortgage insurance policy
  • Ø     Re-inspection by appraiser or lender that
    work requirements have been met
  • Ø     Hazard insurance endorsement

Loan approval
  • handled by the lenders loan committee
  • Notification to escrow of loan approval

Preparing Loan Docs
  • Ø     Retain loan docs, Trustor will come to the
    lender to sign docs
  • Ø     Loan docs go to the mortgage loan broker
    for signature(s)
  • Ø     Title company picks up loan docs Trustor
    signs loan docs at the title company
  • Ø     Title company picks up loan docs Trustor
    signs loan docs at the title company escrow
  • Ø     Loan docs go to the escrow company for
  • Ø     Loan docs go to the real estate
    broker/escrow for signature(s)
  • Ø     Traveling notary delivers loan docs to the
    Trustor for signature(s)

Reg. X
  • Ø     A good-faith estimate of closing costs on a
    prescribed settlement statement form
  • Ø     Servicing disclosure statement indicating
    if the lender plans to collect the ongoing loan
    payments after the close of escrow or if someone
    else will likely perform this job
  • Ø     Related business between the lender and
    affiliated business partners (escrow, title, real
    estate sales office, builder/developer,
    insurance, etc.)
  • Ø     HUD-1(A) FINAL settlement cost statement
    (Reg Z)
  • Ø     Impound account statement showing the first
    year projected income and expenses

Regulation ZHUD-1 form
  • Real Estate Settlement Procedures Act (RESPA)
  • Summary of totals for the borrowers side of the
  • Ø     Summary of totals for the sellers side of
    the transaction
  • Ø     Total gross amount of funds that are due
    from the borrower to close the escrow
  • Ø     Total funds paid by or for the borrower
  • Ø     Total gross amount of funds due to the
    seller at the close of escrow
  • Ø     Total expenses paid by or for the seller
    that reduce the amount due to the seller

  • Ø     Is every signature signed exactly as it is
  • Ø     Have all the places indicated been
    initialed by the Trustor?
  • Ø     Has a date been placed on all documents?
  • Ø     Will all liens be cleared for taxes,
    judgments and other unpaid items as shown on the
  • Ø     Has the borrower instructed escrow on
  • Ø     Are all required places properly notarized
    with a notary seal that is current?
  • Ø     Has the source of funds been verified and
    delivered to escrow?
  • Ø     Are all required inspections, maintenance
    and repairs been completed?
  • Ø     Is the final credit check report in the
    file and checked against the original credit
  • Is the desk/review appraisal information in the

loan docs
  • Ø     Escrow instructions and title insurance
    company copy
  • Ø     Insurance requirements
  • Ø     Title wire instruction
  • Ø     HUD-1 Settlement Statement and TIL, Reg Z
  • Ø     Interest rate disclosure (ARM, Fixed rate,
    Balloon, etc.)
  • Ø     Riders Second home, condominium, 1-4
    family, PUD
  • Ø     Occupancy affidavit
  • Ø     Borrowers certification
  • Ø     Notice Fair housing, flood
  • Ø     Tax forms W-9, IRS Form 4506, 1099
  • Ø     Loan service disclosure, impound account,
    assignment of deed of trust
  • Ø     Deed of Trust and Trust Note

Trust Deed(s)
  • Recordation information
  • County Recorder information
  • Document title
  • Specific wording to convey transfer

Buyer affidavit
  • FIRPTA, (Foreign Investment in Real Property Tax
  • Internal Revenue Service under IRC 1445.

  • Ø      Loan commitment from the lender
  • Ø      Increase in the amount of the initial
    deposit and the placing the additional funds into
    the escrow by a specific date
  • Ø      Approval of the termite report,
    inspections, roof certification, etc.
  • Ø      Obtaining of a city permit, occupancy
    permit or construction plans
  • Ø      Delivery of the insurance policies
    (hazard, earthquake, flood, mortgage)
  • Ø      Closing statement on the property the
    buyer is selling to have the funds to close this
  • Ø      Lease agreements on rental properties and
    security deposit information

Buyer caused escrow fall out
  • o       The buyer backs out because of lack of
  • o       A defect in the property is disclosed to
    the buyer after escrow opened
  • o       Failure to disclose hidden costs
  • o       Buyer dissatisfaction due to poor
    treatment by the agent, lender or others
  • o       Failure of agreement by the parties on
    certain terms, such as points and closing costs
  • o       The lender fails to approve the property
  • o       The lender fails to approve the
  • Buyer frustration in the purchase process and
    lack of understanding on the normal events in
    closing an escrow

Think About It!
  • A buyer purchased a new home directly from a
    builder, which closed escrow on January 2, 2004.
    The contract required the buyer to pay all
    closing costs. To reduce costs, the buyer did not
    purchase title insurance.
  • On September 15, 2004, a mechanics lien was
    filed in connection for work on the property in
    conjunction with the construction. The buyer
    tried to contact the builder who could not be
    located. Upon checking the records, the buyer
    found that the July 1 to June 30, 2003 property
    taxes had not been paid.
  • What does the buyer owe?

Think About It! Answer
  • The buyer bought the property subject to ALL
    existing liens, whether aware of any specific
    lien, or not, and whether or not disclosed to the
    buyer. The buyer has primary responsibility for
    paying both the lien holder for the mechanics
    lien and for the property taxes.
  • By September, however, all of the mechanics
    liens for the construction period would have
    expired. Over nine months later the buyer is
    notified of the mechanics lien. The unpaid
    worker would have had a maximum of 90 days after
    construction was completed to file on the
    property and notify the owner, which would have
    been no later than April 30, 2004. This assumes
    that the builder did not file a Notice of
    Completion. By September the legal period had
    expired and the buyer owes nothing.
  • The buyer does owe the property taxes, but not
    the mechanics liens because the house was
    purchased subject to all existing liens, and real
    property taxes never go away until they are paid
    in full, including the late fee penalty.
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