Loan Signing

Question 1

Borrower (Mortgagor)

Answer 1

An individual who applies for and receives funds in the form of a loan and is obligated to repay
the loan in full under the terms of the loan.

Question 2

Title

Answer 2

Title is the document that gives evidence of ownership of a property. Also indicates the rights of
ownership and possession of the property. Individuals who will have legal ownership in the
property are considered “on title” and will sign the mortgage and other documentation

Question 3

Refinancing

Answer 3

The process of paying off one loan with the proceeds from a new loan secured by the same
property.

Question 4

Escrow Company

Answer 4

An escrow company is a licensed neutral third party that distributes legal documents and funds on behalf of a buyer and seller. Or more simply stated, they are the middle man. They are the authority to make sure that the seller, lender, and borrower all follow through on their agreed upon terms. The seller doesn’t get any less than what they agreed upon and buyer doesn’t pay any more than what they agreed upon. The same goes between the borrower and bank. The
bank agreed to only charge the borrower ‘x’ fees and escrow makes sure of that. Escrow is the neutral third party to make sure everyone behaves. Their role is to keep track of what is going on between the borrower, lender, and title company. Escrow keeps records of what is going on between on all the parties

Question 5

Escrow Agent

Answer 5

A person with fiduciary responsibility to the buyer and seller, or the borrower and lender, to
ensure that the terms of the purchase/sale or loan are carried out.

Question 6

Title Company

Answer 6

The title company makes sure that a piece of real estate is legitimate, then issues title insurance for that property that protects both the lender and the owner from lawsuits as a result of title disputes. Their main responsibilities in a mortgage transaction is to accurately record liens, lien holders and ownership to the property in the transaction. The title company’s role is to be in charge of anything that is being recorded against the property. Lastly, their job is to make sure all the liens, ownership and lien holders are recorded with the county the property resides in.

Question 7

Title Insurance

Answer 7

Title insurance protects a lender against any title dispute that may arise over a particular property. It is required to close on your home. You may also purchase owner’s title insurance which protects you as the homeowners.

Question 8

Lender

Answer 8

The lender is the bank that is lending the money. The lender has the biggest role in the process, because without them lending the money, there would be no need for a title or escrow company. This is the reason why the majority of the documents in your loan signings are lender documents.

Question 9

Deed of Trust & Rider

Answer 9

The deed of trust, also known as the mortgage in some states, has 5 main functions:
1. It records who actually owns the property: e.g. Jane Doe and John Doe, husband and wife as joint tenants
2. It records the amount the borrower is borrowing from the bank, also known as the lien amount.
3. It records who is lending the money, also known as the lien holder.
4. It records the legal description of the property. We all know the street address to a property. E.g. 123 Springdale Avenue. The legal description is how the county recognizes the property location via the lot boundaries and lot location within the county.
5. Last but not least, it states the rules and regulations in which the property owner has to abide by.
Riders are simply amendments to the deed of trust. Something the lender wants to add to the deed. As an example, you may see a VA rider letting everyone know that it is a VA loan. Riders are just amendments that get recorded with the deed. Examples would be condo riders, adjustable rate riders, or PUD riders.

Question 10

Principal

Answer 10

The amount of debt, not counting interest, left on a loan.

Question 11

Note

Answer 11

The note is a fancy way of saying contract. The bank note is where the the borrower agrees to the terms of the loan. For example, the note would specify that the borrower is borrowing $300,000 at a 4% interest rate, and will have a certain fixed payment for 30 years. Ie the debt instrument itself

Question 12

Interest Rate

Answer 12

The interest rate is what the borrower agrees to pay back the bank on the money that is borrowed. How are interest rates determined? The generic answer is a rate sheet that lenders used, but more specifically interest rates are tied to risk. The lower the perceived risk, the lower the interest rate. The main computation of interest that you qualify for off a rate sheet is based of credit score, LTV, term, and whether or not you occupy the property. Hence why if you have a high credit score, you have shown that you regularly pay back the money that you borrow. Therefore you get a lower interest rate because of the lower perceived risk for the bank to lend you money. The opposite is true when you have a lower credit score,
you get a higher interest rate.

Question 13

Loan to value

Answer 13

means how much you owe versus the value (appraised value or sale price, whichever is lower) of the home. For instance if your house is worth 200k and you owe 100k, your loan to value is 50%. The higher the loan to value, the higher the perceived risk.

Question 14

Fix Rate Note

Answer 14

This means the interest rates will not change for the duration of the loan. Whether that means 10, 15, 20 or 30 years. This allows the payment to stay the same for full amount of the term. The longer the term, the higher interest rate. For example, interest on a 15 year loan might be 5% while a 30 year loan might be 5.5%. So you can see the advantage of opting for a shorter term, however the payment would be higher because the loan has to be paid back in shorter
duration of time.

Question 15

Adjustable Rate Mortgage Loans (ARM)

Answer 15

Unlike a fixed rate mortgage, an adjustable rate loan’s interest rate will change, often after a set amount of years of fixed payments. The payment may be low initially because it is based on payment that is 30 years but the rate will change/adjust after “X” years. The most common adjustable rate terms are 3, 5, 7, or 10 years. After the fixed term is up, the interest rate will change on a yearly basis until it is completely paid off. Hence why they are called 5/1, 7/1 or 10/1. Fixed for 5 years and changes every year thereafter. After the term is up, the rate will change via an index (usually the treasury bill or the LIBOR) plus a margin that is set by the lender. The margin never changes but the index will go up or down with the libor or treasury note. For example if the is index 3% and the margin is 3% the rate for
that year would be 6%.

Question 16

Home Equity Line of Credit (HELOC)

Answer 16

A home equity line of credit is a line of credit that is tied to the equity of your house. For instance, the home is worth $500,000 and there is a first loan for $200,000, that means there is $300,000 of equity. In this example, a bank may approve the borrower for a line of credit for $100,000. Unlike a loan that has a specific payoff term (15, 20 or 30 years), the line of credit works like a credit card. So in this example, the borrower may buy a car for $15,000 on that line of credit, which then means they would have $85,000 remaining that they could charge against the HELOC. If they borrowed $15,000, they would make payments only on the amount borrowed, just like a credit card.

Question 17

Reverse Mortgage

Answer 17

A reverse mortgage enables older homeowners (62+) to convert part of their equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you based off the equity you have in the home. For example, if the home’s value is $500,000 and the borrower owes $100,000, a reverse mortgage would literally pay out the equity you own on a monthly basis, until a cap is reached.