PSI-Chapter 17 - Closing the Real Estate Transaction

Question 1

What is the closing process based on?

Answer 1

The closing process is based on the provisions of the SALES CONTRACT, making it important that the parties treat the negotiation for the purchase of the property - the process of offer and accept - very seriously.

Question 2

What is the Escrow Procedure?

Answer 2

After the sales contract is signed, the buyer and seller execute escrow instructions to the escrow agent. They can only be changed at the written direction of both buyer and seller. The real estate professional who is holding the earnest money turns it over to the escrow agent, who deposits it in a special trust or escrow account. The Buyer and Seller deposit all pertinent documents and other items with the escrow agent before the date of closing.

Question 3

What does the SELLER deposit into the escrow account?

Answer 3

• The deed (a written instrument) conveying the property to the buyer
• Title (the right to ownership) evidence
• Existing hazard insurance policies
• A letter or mortgage reduction certificate from the lender stating the exact principal remaining (if the buyer is assuming the seller’s loan)
• Affidavits of title (if required)
• A payoff statement (if the seller’s loan is to be paid off) and
• Other instruments or documents necessary to clear the title or to complete the transaction.

Question 4

What does the BUYER deposit into the escrow account?

Answer 4

• The balance of the cash needed to complete the purchase, usually in the form of a certified check
• Loan documents (if the buyer secures a new loan)
• Proof of hazard insurance, including (where required) flood insurance and
• Other necessary documents, such as inspection reports required by the lender.

Question 5

Real Estate Settlement Procedures Act (RESPA) regulations apply to…
(page 323)

Answer 5

RESPA regulations apply to first-lien residential mortgage loan made to finance the purchase of a one-to-four family home, cooperative, or condominium, for either investment or occupancy, as well as second or subordinate liens for home equity loans when a purchase is financed by federally related mortgage loan.

Question 6

What is Real Estate Settlement Procedures Act (RESPA)?

page 322

Answer 6

is a federal law that requires certain disclosures about mortgage loan settlements. It also prohibits certain practices such as kickbacks and referral fees.

Question 7

What does GFE stand for?

Answer 7

Good-Faith Estimate

Question 8

What is a Good-Faith Estimate (GFE) or Settlement Costs?

Answer 8

An estimate of all closing fees that was formerly provided to a borrower within three days of the loan application as required by the Real Estate Settlement Procedures Act (RESPA)

Note: The ONLY fee that the lender may collect BEFORE the loan applicant receives the GFE is the fee for a credit report.

Question 9

The GFE indicates which closing costs may or may not change prior to settlement and, if they do, by how much. The fees are divided into three categories. What are they:

Answer 9

1. NO TOLERANCE -fees that may not increase before closing; lender charges for taking
   underwriting
   processing the loan application
   including points, origination fee, and yields spread premium
2. 10% TOLERANCE -fees that cannot increase by more than 10% in any given category;
   settlement services for which the lender selects the provider or
   for which the borrower selects the provider from the lenders list
   title services and title insurance if the lender selects the provider and
   recording fees
3. UNLIMITED TOLERANCE -fees for services that are out of the lender’s control:
   services for which the borrower chooses the provider (such as escrow and title insurance)
   impounds for taxes
   mortgage interest and
   the cost of homeowners insurance

Question 10

What is the 3 - 7 - 3 rule?

Answer 10

The 3 7 3 is the lender’s deadlines for providing information to the borrower

• 3 business days from application to provide the truth-in-lending statement (TIL) and good-faith estimate (GFE)
• 7 business days before the signing of loan documents to provide the final TIL and GFE
• 3 business days must pass before closing if the APR has changed more than 0.125% from the original or most

Question 11

How do you determine the amount a buyer must bring to closing?

Answer 11

Any buyer expenses and prorated amounts for items prepaid by the seller are added to the purchase price. Then the buyer’s CREDITS are totaled. Credits to the buyer INCLUDE the earnest money (already paid), the balance of the loan the buyer obtains or assumes, and the seller’s share of any prorated items the buyer will pay in the future.
Finally, the total of the buyer’s credits is subtracted from the total of the buyer’s debits to arrive at the actual amount of cash the buyer must bring to closing. The buyer usually brings a cashier’s or certified check.

Question 12

What is a Credit?

Answer 12

A credit is an amount entered in a person’s favor - an amount that has already been paid, an amount being reimbursed, or an amount the buyer promises to pay in the form of a loan.

Question 13

What is a Debit?

Answer 13

A debit is a charge - an amount that a party owes and must pay at closing.

Question 14

A Settlement Statement (HUD-1) must be used to illustrate all settlement charges for…

Answer 14

Residential transactions financed by federally related mortgage loans

Question 15

Which charge noted on the Good Faith Estimate (GFE) must be the same or less than the charge noted on the HUD-1 form?

Answer 15

Lender charges for taking and underwriting the loan.