NSA Loan Document Knowledge 3 — Questions and Answers
Question 1: What is the primary purpose of the Notice of Right to Cancel for eligible transactions?
- To allow the lender to cancel the loan
- To give the borrower three business days to rescind a refinance on their primary residence (Correct answer)
- To notify the title company of the closing date
- To waive the borrower's right to an appraisal
Correct 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.
Question 2: In a purchase transaction, who typically signs the Deed at closing?
- The buyer
- The seller (Correct answer)
- Both buyer and seller
- The notary signing agent
Correct answer: The seller
The seller signs the Deed to transfer property ownership to the buyer; the buyer does not sign the Deed.
Question 3: What does 'per diem interest' on a Closing Disclosure represent?
- Monthly interest charged after closing
- Daily interest to cover the period between closing and the end of the month (Correct answer)
- A penalty fee for late payment
- Interest refunded to the borrower at closing
Correct 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.
Question 4: Which loan type requires a Funding Fee instead of mortgage insurance?
- FHA loan
- Conventional loan
- VA loan (Correct answer)
- USDA loan
Correct answer: VA loan
VA loans require a VA Funding Fee paid upfront or financed into the loan, rather than ongoing mortgage insurance premiums.
Question 5: The 'cash to close' figure on a Closing Disclosure reflects:
- Only the down payment amount
- The total funds the borrower must bring to closing (Correct answer)
- The lender's net profit on the transaction
- The seller's net proceeds
Correct 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.
Question 6: What is an 'impound' or 'escrow' account in mortgage lending?
- An account holding funds disputed between buyer and seller
- A lender-held account from which property taxes and insurance are paid (Correct answer)
- A savings account the borrower uses to save for closing costs
- An account frozen during foreclosure
Correct 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.
Question 7: A 'subordination clause' in a mortgage means:
- The borrower may pay off the loan early without penalty
- The lender agrees its lien may be placed below another lender's lien in priority (Correct answer)
- The lender can demand full repayment if the property is sold
- The borrower must notify the lender before making improvements
Correct 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.
NSA Loan Document Knowledge 3
What is the primary purpose of the Notice of Right to Cancel for eligible transactions?