Loan Document Knowledge Flashcards

What is the primary purpose of the Notice of Right to Cancel for eligible transactions?

Answer: To give the borrower three business days to rescind a refinance on their primary residence

The Notice of Right to Cancel (Right of Rescission) gives eligible borrowers three business days to cancel a refinance of their primary residence.

In a purchase transaction, who typically signs the Deed at closing?

Answer: The seller

The seller signs the Deed to transfer property ownership to the buyer; the buyer does not sign the Deed.

What does 'per diem interest' on a Closing Disclosure represent?

Answer: Daily interest to cover the period between closing and the end of the month

Per diem interest is the daily interest amount prepaid at closing to cover the days from closing to the first day of the next month.

Which loan type requires a Funding Fee instead of mortgage insurance?

Answer: VA loan

VA loans require a VA Funding Fee paid upfront or financed into the loan, rather than ongoing mortgage insurance premiums.

The 'cash to close' figure on a Closing Disclosure reflects:

Answer: The total funds the borrower must bring to closing

Cash to close is the total amount the borrower must bring to settlement, including down payment, closing costs, and any prepaid items minus credits.

What is an 'impound' or 'escrow' account in mortgage lending?

Answer: A lender-held account from which property taxes and insurance are paid

An escrow/impound account is maintained by the lender to collect and pay the borrower's property taxes and homeowner's insurance.

A 'subordination clause' in a mortgage means:

Answer: The lender agrees its lien may be placed below another lender's lien in priority

A subordination clause allows a senior lender to accept a lower lien priority position, often needed when refinancing with a second mortgage in place.