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Frequently Asked Questions (FAQs) on mortgages: Real Estate
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Who will review my loan documents with me at the closing?
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What is the IRS Form 4506 which I'm being asked to sign when I was
applying for a mortgage loan?
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Who will review my loan documents with me at the closing?
When you sit down for your closing, whether it is at a title company,
an escrow office, an attorney's office, or any other location, you
will be asked to sign a number of documents. Among those documents
will be your loan papers, if you are taking out a loan, which the
lender submitted to your escrow or closing agent. Several of these
documents you may be viewing for the first time. Can your escrow
officer review these documents with you?
If you have an attorney present at your closing, he or she will
normally explain the loan documents to you, together with your other
escrow papers. In many areas of the country, attorneys are not
normally present at the closing, unless there are special
circumstances which require legal opinions. You may be responsible
for signing the loan documents on your own and there are several
safeguards you should take before signing these legally binding
documents. You may ask the escrow officer attending the closing
questions regarding the general provisions of the loan papers. She
can explain general terms such as points, origination fees, prepaid
interest, underwriting and processing fees to you. She can explain
appraisal fees, credit report fees and tax service fees. By
definition, an escrow officer serves as an impartial third party in
the transaction, favoring neither buyer, seller or lender, so she
cannot give legal advice or render opinions.
If you have specific questions on your loan documents, such as how
the prepayment penalty on your loan will work, or how the PMI
(Private Mortgage Insurance) will be calculated, you should ask your
lender prior to your closing day. Before you go to your closing, be
clear as to how your interest rate will be calculated, whether it is
a fixed rate loan, an adjustable rate mortgage, or a combination of
the two. Be sure to understand how the escrow reserve account will be
funded. Will the lender be collecting a monthly amount for insurance
and taxes? You will want to understand how the reserve account will
be handled, whether or not you will be allowed to cancel this option
at some point during the life of the loan, and if the reserve amount
can be raised, and if so, how often and by how much. What guidelines
must your lender follow to notify you of an increase in the escrow
reserves collected?
To protect yourself against any unexpected loan expenses or clauses
found in your note or mortgage documents, ask the escrow officer or
lender for a copy of the HUD-1 Statement at least one day prior to
your closing day. Carefully compare the costs listed on the HUD-1
Statement with those fees which were listed on the Good Faith
Estimate which was given to you when you initially applied for your
loan. The fixed expenses, such as the points, origination fees,
underwriting and processing fees should be the same. The appraisal
fee, credit report fee or lender's inspection fee may vary somewhat
from your original estimate. You may see an added courier or wire
transfer fee, which is common, as the lender will generally either
courier or wire their loan proceeds to the escrow agent. The amounts
listed under the prepaid interest or other proration amounts for
insurance and taxes, may vary from your Good Faith Estimate.
Calculate those charges yourself, to be certain that they are
correct.
You may want to ask your lender if your loan will be sold in the
secondary market and who will service your loan. Ask your lender for
the address of where to contact them in the future in the event you
have questions or concerns about your loan or the processing of your
loan payments. This could prove to be valuable information when you
want to contest or question a specific requirement regarding your
loan.
Your loan documents are the most important papers that you will be
asked to sign at closing. They will be legally binding, and may cover
a 15 or 30 year period. Understand their terms and conditions
thoroughly before you sign. Don't be afraid to ask the escrow officer
to call the lender if you find there are still unanswered questions
at the time of closing. Before signing, resolve any questions, to be
sure that your understand your obligations under the note and
mortgage or deed of trust. Your escrow officer is there to guide you
to the correct source for answers to your questions. Don't rely on
second hand opinions or advice in these important financial
obligations.
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What is the IRS Form 4506 which I'm being asked to sign when I was
applying for a mortgage loan?
Form
4506 is a form which gives a lender the right to receive a
borrower's tax returns directly from the IRS for as far back as 4
years (or beyond) in order to verify the borrower's income. Many
commercial lenders use this form. It is honored by the IRS for 60
days after it is signed and dated.
A WORD OF CAUTION: If your lender insists that you sign the form,
but leave it undated, this would give the lender the right to use the
4506 form and view copies of your tax returns, any time over the life
of your loan. To limit the lender from access to your tax returns
indefinitely over the term of your loan, be sure to insist that you
be able to date the form at the time of signing.
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