3/12/2007

Basics of Your Loan

These days with so much in the news about subprime loans gone bad, it's also important to know that statistically, these represent a small percentage nationally.
"The truth is that 99% of all loans in the U.S. are not in
foreclosure. The remaining 1% that were foreclosed upon had the following breakdown:
* 80% were classified by federal lenders as Professional Thieves and were turned over to the FBI.
* 20% were classified by lenders as Fraud for Property that resulted in unethical lending practices.
* Ca. Defaults: Historical 32,762 - Low: 12,145- 3Q’04 High: 59,987 – 1Q’96 Current: 37,273
* For all of ‘06, foreclosures accounted for only 1.81% of all Orange County sales, with lenders reselling those homes at an average discount of only 3.8%!" Gary Watts, p. 4 of Real Estate Outlook 2007.

To avoid future dissatisfaction, find out now what to expect to see at your closing when you're faced with a stack of paper to sign. You want to know about three basic parts of your loan papers: The note, the deed of trust (or trust deed), and your HUD-1 statement.

The Note secured by a deed of trust includes the interest rate, payment terms and may include pre-payment penalty terms and other provisions. Make sure these are what you were told you were getting.

The trust deed will show the names of the trustor (borrower), trustee (usually the title company which holds title on behalf of beneficiary), and beneficiary (legal holder of the Note), and includes how the buyer will be taking title, and a legal description of the property and prepayment terms. You need to carefully check all of these before signing for any errors. Bring the legal description from your preliminary title report given you in escrow to refer to. (Even title companies can make mistakes: One time I was representing a buyer in escrow on a property and saw that the seller's name on the tax records had been replaced by the buyer's of the neighboring property because of an inaccuracy in recorded documents.)

The government HUD-1 statement is your final accounting of costs and disbursements for your property transaction. Save this form, as well as the rest of your transaction records, in your files. This document is included with your escrow closing package.

If you want assistance at the time of closing, ask your Realtor or loan officer to be there with you during your appointment, or ask them to be available by telephone in case you have questions when you sit down with the escrow officer.

And, last but not least, while I as a Realtor work with loan professionals I trust and may make a recommendation to you, you the buyer should search out your loan options with other professionals to satisfy yourself. This is also not the time in your life to assume your friend or relative who has been in the business 6 months is going to give you the assistance you need. Loans require extensive knowledge. I have been asked questions by buyers in escrow, who should have been asking these questions of their own Realtor, about lender services they are now unhappy with after their buyer contingencies have been removed and they may risk losing their deposit. Ask how long that loan officer has been in the business on a fulltime basis, if they can be reached when they are out of town, and who can you contact in their office if they are not available immediately, i.e., their loan processor. These questions are not a guaranty, but the answers may give some hints at the service and competence you will be receiving. There is much information on the internet, a lot of it negative, fear-driven, inaccurate or inapplicable to you, but there is no reason why you the buyer shouldn't be attempting to learn about your upcoming loan and home purchase as much as you can.

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