Question 1

Which item is typically considered a prepaid item at closing rather than a lender fee?

Accepted Answer

Prepaid items are amounts collected in advance for obligations such as per diem interest, taxes, or insurance. They differ from lender or settlement-service fees.

Question 2

What is the primary purpose of an escrow deposit collected at closing?

Accepted Answer

Escrow deposits are collected to establish a reserve account from which future taxes, insurance, or similar items may be paid. They are different from prepaid charges that cover a current period.

Question 3

Which party typically records the mortgage or deed of trust after closing?

Accepted Answer

The settlement or closing agent commonly handles recording of the security instrument with the appropriate public office. Recording helps establish the lender's lien in the public record.

Question 4

A borrower asks why cash to close is higher than just the down payment. What is the best explanation?

Accepted Answer

Cash to close can include down payment plus closing costs, prepaid items, and initial escrow deposits, offset by credits or deposits already paid. It is broader than the down payment alone.

Question 5

What is the main difference between owner's title insurance and lender's title insurance?

Accepted Answer

Owner's title insurance protects the homeowner's ownership interest, while lender's title insurance protects the lender's lien. They insure different parties against covered title defects.

Question 6

A buyer closes on the last day of the month. Which prepaid item may be relatively low because few days remain in the month?

Accepted Answer

Per diem interest depends on the number of days between closing and the start of the normal payment period, so it can be relatively low near month-end. It is a timing-based prepaid charge.

Question 7

Which closing charge is most likely to vary with the actual closing date?

Accepted Answer

Prepaid interest varies with the actual closing date because it is charged per day from closing until interest accrual aligns with the payment schedule. Many other fees do not change for that reason.

Question 8

What is one reason a borrower should review wiring instructions carefully before sending funds to close?

Accepted Answer

Wire fraud is a major closing risk, so borrowers should verify wiring instructions carefully using trusted channels. Sending funds to the wrong account can be catastrophic and hard to reverse.

Question 9

Which statement best describes a dry closing versus a wet closing in general mortgage usage?

Accepted Answer

In general usage, a wet closing typically means documents are signed and funds are available at closing, while a dry closing may involve a gap before funds are released. Specific practice can vary by state or local custom.

Question 10

Which statement best summarizes strong closing procedure awareness for an MLO?

Accepted Answer

MLOs should understand the moving parts of closing so they can explain why money is due, who is paid, and what each category means. Clear explanations reduce confusion and build trust at a high-stress point in the transaction.

Closing Procedures Practice Questions

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