Is My Credit Checked Before Closing

A “soft” credit check is just prior to closing on your mortgage.  This is to ensure that no new debt was obtained during the mortgage process and that the information on your final application that you sign at closing still represents your financial scenario.

A soft credit check does not impact your credit scores. It will disclose any new debts and credit inquiries.  If there are changes to your credit revealed from the soft credit check, be prepared to explain and document whether or not new credit was obtained. Even if the credit card you decided to open during the transaction has not been used, you will still need to provide documentation regarding this new potential debt.

A “hard” credit check may take place if your existing credit report is set to expire before closing. Different than a soft credit check, the mortgage company will order a new credit report and the terms of your mortgage will be impacted by what the new report discloses, including any changes to your credit scores. This includes your current pricing of the loan and qualifying. 

It’s really best to not obtain any new credit during the mortgage process and avoid applying or inquiring for any credit. Even when the creditor states “six months same as cash” or “this won’t impact your credit” – don’t buy it!  If you do feel you need to make a purchase just prior or during the mortgage process, please discuss it with your mortgage professional first. A new car or big screen tv for your home may delay the purchase of your new home. 

Before You Go to Your Signing Appointment [Updated]

When I originally wrote this post back in January 2007, we didn’t have the Good Faith Estimate that HUD created and implemented in 2010. Although this GFE has caused greater confusion and has overall been a failure (a new version is should be available in 2012), the one positive feature about the 2010 GFE is that lenders are bound by what they quoted on their last Good Faith and page three of the HUD-1 Settlement Statement clearly compares what was quoted by the Mortgage Originator and what the final fee at signing is. In addition, there are certain tolerances that limit how much more a fee at closing can be for some of the lender fees.  

It’s fun to revisit and dust off old articles that I’ve written. I hope you find these tips beneficial for when you attend your signing appointment for your refinance or purchase. NOTE: I only help people with their mortgage needs for homes located in Washington state, so if you’re not buying or refinancing a home in Washington, some of this information may not apply to you.

1. Obtain a copy of your estimated HUD-1 Settlement Statement at least 1 day before closing.  Your estimated HUD-1 Settlement Statement discloses all the fees that are involved in the transaction. Instead of waiting to see this document at your signing appointment (along with the stack of other documents you’ll be signing) have the escrow officer email this to you 1-2 days before signing. Sometimes that can be a little tricky because there are times when loan docs are arriving at escrow hours before your signing appointment. In order to improve your odds of getting a copy of this document before signing, notify your mortgage originator and escrow officer well in advance that you would like to a copy of your HUD 1-2 days before signing.

2. Bring your Mortgage Originators contact information. When your signing appointment is set, contact your mortgage originator to find out if they will be available during your signing and how is the best way you can reach them should you have any questions. Some signers (not all are escrow officers) are better at answering questions than others. If you have questions about the documents you are signing, you can pause the signing and call your mortgage originator. There are times I’ve attended signings for clients, especially first time home buyers, when location and schedule permits. I always try to be available to answer any questions that may arise during a clients signing.

3. Bring a cashier’s check or make arrangements to wire funds for closing.  A good lender will do everything in their power to provide escrow with instructions in a timely manner so that they can, in turn, give you the dollar amount required as soon as possible.  Sometimes, you may only get a day or two of notice before escrow contacts you with this information.   The reason this can occur so late in the process is because all the loan documents have to be prepared by the lender and are then delivered to the escrow company with our instructions.   The escrow company then creates a HUD-1 Settlement Statement which determines exactly how much funds you need to bring to closing.    When you are told the amount, you need to obtain a cashier’s check payable to the escrow company and bring it with you to the closing appointment.   A personal check or cash is a no-no.  NOTE:  If you are considering wiring funds to the escrow company, please contact them in advance to discuss this process.

4.  Bring a copy of your Good Faith Estimate.   You will want to compare it to the Estimated HUD-1 Settlement Statement that will be presented to you at the signing. Hopefully, the Escrow Officer has provided your Loan Originator a copy of the HUD in advance for them to review it prior to your appointment.  NOTE: Although I mentioned in the intro above that the 2010 GFE compares the last quoted with the HUD-1, it’s probably not a bad idea to bring the last GFE that you received from the mortgage originator to make sure it’s the correct one to be used at signing.  SIDE-NOTE: Currently GFE’s can only be reissued with a bona-fide “changed circumstance”.

5.  Bring your current driver’s license.  The notary must see them for proof you are you!  Some may require two forms of identity. Contact your escrow officer to see what they require.

4.  Bring anything else that the escrow company or lender request.  Sometimes the lender may need you to bring follow up documentation to closing (such as original signed documents, most recent paystub, etc.). 

6.  Bring directions to the escrow company.   Be sure to get specific directions to the escrow company from the escrow company (or visit www.mapquest.com).  Please be on time.  Escrow companies are often very busy and are generally on time.

7.  Plan on your signing taking approximately 45 – 60 minutes.  If you would like to have more time to read your documents, or to have an attorney review them for you, ask your lender in advance so they can accommodate having a copy of your loan documents available to you in advance.  Your loan package is about an inch of paper.   If you want to read it word for word, you should obtain a copy in advance.   

8. Sign your documents as your names appear.   Sign your name within the County’s required borders for recordings.  This avoids last minute corrections or delays in your closing.   You may want to do some hand exercises before signing (just teasing—well, kind of). Do sign your name exactly as it appears on the loan documents – if there’s a middle initial, sign with it. If you sign your name differently throughout the loan package, you may have the joy of re-signing your loan documents. NOTE: I’ve only had this happen once and this person signed her name several different ways throughout her final documents. As a result, she had to sign again and her closing was delayed.  There is no way an investor would have accepted legal documents with varying signatures.  If you have a preference with how you want your name to appear on the loan docs, you need to express this at the beginning of the loan process.

King County Recording OfficeAfter signing your documents, escrow sends the original required documents to the title company who, after reviewing, delivers them to the County where the property is located.   With our company, the funding department also reviews the loan documents and verifies all conditions are met. At this point, the lender coordinates with the escrow company to release the funds and to record the documents on the scheduled day for closing. This is a photo of the King County Recording Department’s “recorders closet” for title companies and others who do recordings in masses.

Signing and funding (closing) typically do no take place on the same day.  Typically the latest I like my clients to sign is two days before closing with a purchase (sometimes it may wind up being the day before).  With a refinance for an owner occupied property, signing takes place about five days before closing because of a mandatory three day waiting period before the loan can close. The three days are “postal days” and sometimes may cause locks to have to be extended, hopefully one day Congress will revise this outdated guideline.

Once your transaction is closed, you may be notified by your real estate agent, escrow officer, mortgage originator or all the above.  Congrats!

Why Is My Payoff Higher Than The Principal Balance?

Mpj040096800001I am often asked this question during a refinance from homeowners.   Your mortgage payment is paid in arrears.   For example, your February payment is paying January’s interest.   Remember when you bought or refinanced your home and the loan originator stated “you’re going to skip one month’s payment” or “you won’t have another payment due until the following month after closing”?  Well this is where that payment essentially catches up with you.  (Technically, it’s not “that” payment, you’re just always paying the previous month’s interest).

The escrow company will order the payoff from your mortgage company.   The interest is prorated to the day of funding/closing.   There may be additional fees included in your payoff that the lender will charge, such as:

  • pay off transmission fees
  • unpaid late fees
  • prepayment penalties (you may want to consider delaying a refinance if possible until the prepay period is over if you have a prepayment penalty)

Often times, the escrow company will request the payoff with a few additional days factored in to act as a cushion.  The escrow company may (should) order an updated payoff closer to the signing date in order to provide the most accurate figures possible.  The lender being refinanced will refund any difference in your favor.   In addition, if you have an escrow reserve account for taxes and insurance, you will receive a refund from the lender in approximately 6-8 weeks after closing.    

At your signing appointment, ask to receive a copy of your payoff statement.  Check to see how recently it was requested.  If it was ordered at the beginning of the transaction and you have since made a mortgage payment, you can ask the closer to order an updated statement prior to closing (with a refinance, their is a three day right of rescission that takes place, so there should be enough time for this to take place with most lenders).   

What is Escrow?

Mpj042214800001_1One of the first-time home buyers I’m currently working with just called me with a few excellent questions.  She and her boyfriend have recently made an offer on their next home, with their agent which was accepted.  They now have handsome stack of papers from the escrow company (as if the paperwork from the lender wasn’t enough) that caused some questions. 

What is escrow?  The escrow company is a neutral party in a real estate transaction acting on instructions from the buyer and seller.  Typically, escrow is handled by independent escrow companies (privately owned), title insurance companies, real estate companies, mortgage companies, attorneys or banks (not all escrow companies require LPOs or are regulated by DFI, such as attorneys or banks).

Escrow follows the instructions of the purchase and sale agreement, lender and the buyer and seller instructions (you should receive this in a preliminary escrow package before closing and will again at closing).    They clear title (make sure that the property only has what is acceptable by the lender’s standards) and handle the funds from the buyer, seller and lender.   

They prepare an estimated HUD-1 Settlement Statement, which is kind of like a balance sheet to the transaction.   (Whenever possible, I review the estimated HUD to make sure it correlates with the good faith estimate.  And, I recommend that borrowers always bring a copy of their good faith estimate with them to their signing appointment).   As LPOs (Limited Practice Officers), they may draft certain documents that have been approved by the Bar Association of Washington to prepare given that the individual preparing these documents are licensed to do so.   In a purchase transaction, some of the most common documents the LPO may prepare are the Statutory Warranty Deed (transfers title from the seller to the buyer) and Excise Tax Affidavit (accompanies all deeds and determines how sales tax is paid by the seller).

The escrow company will also accommodate the signing of the transaction as well.    Some escrow companies have more than one location to accommodate your signing–it’s worth asking if you need it!   Escrow sends the documents to be recorded (deed and deed of trust) to the county.  Once the documents have been recorded, escrow disperses funds to the appropriate parties.    

Escrow typically does not handle the transfer of keys (talk to your real estate agent about that) and cannot provide legal advice.   

Buyers and sellers typically don’t “see” escrow until their signing appointment and may wonder “why am I paying an escrow fee for?” not knowing all that escrow has done on their behalf behind the scenes.