PAPERS YOU WILL BE SIGNING AT SETTLEMENT
Whether you are settling on a loan to purchase a home, or refinancing, you will find that at settlement, there are many documents to sign. We hope that the following synopsis of the documents most commonly used by lenders will assist in taking some of the anxiety and confusion out of the settlement process.
- Note - This is the most important lender document. This is your legal I.O.U. that is, your agreement to pay back the money. The Note is almost always set forth on a standard note form, however , it is important to read through it with your settlement officer or attorney to insure that the terms are correct. Look for: interest rate, term of the loan (15 or 30 years, etc.) , loan amount, and if it is adjustable, look for the margin, the change dates, and the ceiling or caps.
- Deed of trust - This is the instrument which is recorded in the courthouse to show that your property is encumbered by a mortgage. A standard form is used for this and it is very lengthy. The document itself merely summarizes how mortgages work under state law. It is not necessary to read through this document at settlement, in fact, it is almost impossible to do so. If you wish to read it beforehand, ask your attorney to put a copy in the mail to you before settlement. At settlement, you will be asked to sign the last page, and possibly initial all the pages.
- Name affidavit - Most lenders require that the borrower sign an affidavit, stating that if the borrower has used any other name or initials, the borrower is really the same person. For example, if James Smith sometimes also sign his name as J.L. Smith or goes by James Luther Smith, he will be asked to sign that James Smith is the same person as James Luther Smith and J.L. Smith.
- Right of rescission - This is a notice, which is signed only at a refinance settlement. For refinancing of your personal residence, federal law gives the borrower a 3-day right to recession. Lenders routinely require that the borrowers sign to acknowledge that they have received two copies of the right of rescission notice, and then to sign after the rescission period is over, stating that the 3 days have elapsed, and that they have not rescinded. Some lenders break this down into 2 notices.
- Truth in lending - This disclosure document is intended to be presented to borrowers at loan application to comply with the lenders obligation under the Federal Truth in Lending Law. The law was intended to allow a prospective borrower to shop and compare the true cost of the loan by disclosing the annual percentage rate and key terms of the loan itself. The annual percentage rate is often higher than the actual interest rate, since points and other lender charges have to be included in the total computation. Since Lenders must comply with this law, a final Truth in Lending is signed at settlement. This may be different from the one which you may have received earlier on, if you locked in at a rate, or on terms different from what was originally discussed at loan application. This document also indicates whether loan is assumable or not ( usually only FHA and VA loans are assumable in todays market).
- First payment letters - This sets forth your monthly payment broken down into principal and interest, plus escrows. It usually informs the borrower as to when the first payment is due, the loan number, and the address where the payments are to be sent. Sometimes the lender also provides a temporary payment coupon, to be used in case the payment coupon book does not reach the borrower prior to the first payment due date.
- Escrow analysis - This statement confirms the amount of real estate taxes, insurance, and mortgage insurance, if applicable, that are to be paid by the lender on a yearly basis.
- Compliance agreement - Sometimes borrowers are required to sign several different forms of this same document at settlement. The borrower is acknowledging that in the event that the lender is audited by the federal agency, or if there are clerical or typographical errors contained in the documents, the borrower agrees to work with the lender so as to make any necessary changes or cooperate with the federal agencies.
- Flood hazard insurance - This statement indicates that in the event that the area in which the house is located becomes a flood hazard area (very unlikely is most areas), the borrower authorizes the lender to obtain flood hazard insurance and to pay the lender for the annual premium.
- Assignment disclosure - Lenders are required to disclose the approximate number of loans that are sold to other lenders during the past three years. The disclosure also summarizes consumer rights and compliant procedures under federal law. If your loan has been sold prior to settlement, this is also disclosed, and the name and address of your new lender is provided.
Other miscellaneous documents
- Occupancy Statement: That the borrower will reside in the property as their primary residence.
- As-is Statement: That the borrower has inspected the property and accept it as is, in its present condition.
- Loan Application Form: The original loan application has been typed up for the lenders permanent loan file, and borrowers asked to sign and initial.
- Owners Affidavit: That the borrowers own the subject property, and do not have any other mortgages, liens, or judgments other than those which they have previously disclosed.
- No Material Changes: That the borrowers have not had any material change in their financial status, martial status, or employment since their loan application was taken.
- W-2 Forms: To verify the borrowers correct Social Security Numbers.
- Power of Attorney to Correct Clerical Errors: Borrowers are asked to give the settlement attorney a limited power of attorney to correct for clerical errors after settlement.