Question 1

Which of the following typically occurs LAST in the closing process?

Accepted Answer

Recording the deed at the county recorder's office is typically the final step in the closing process. It provides constructive (legal) notice to the public that ownership has transferred. The sequence is generally: inspection, title search, loan signing, then recording.

Question 2

Which document replaced the HUD-1 Settlement Statement for most residential mortgage transactions and is required to be provided to borrowers at least 3 business days before closing?

Accepted Answer

Under TRID (TILA-RESPA Integrated Disclosure) rules effective October 2015, the Closing Disclosure (CD) replaced the HUD-1 and must be provided to borrowers at least 3 business days before closing. The Loan Estimate replaced the Good Faith Estimate and is given within 3 business days of loan application. Together they help borrowers compare initial loan terms with final terms.

Question 3

On a closing statement, a charge that increases the buyer's costs is entered as a:

Accepted Answer

In closing statement accounting, a debit is an amount owed or a charge, and a credit is an amount received or a benefit. Items that cost the buyer money (purchase price, loan origination fees, property taxes owed by buyer going forward) appear as debits on the buyer's statement. Items the buyer is owed (earnest money deposit, seller credits) appear as credits.

Question 4

Prepaid interest (per diem interest) collected at closing covers the interest from:

Accepted Answer

Mortgage interest is paid in arrears — the payment due on the first of the month covers interest for the prior month. At closing, lenders collect prepaid interest (per diem interest) from the closing date through the end of the month. This ensures that when the borrower makes their first full payment (typically the first of the month two months after closing), it covers a complete month of interest.

Question 5

Which of the following items is typically a CREDIT to the seller on the closing statement?

Accepted Answer

The purchase price is a credit to the seller (money the seller is owed/receiving) and a debit to the buyer (money the buyer owes). Real estate commissions and mortgage payoffs are debits to the seller (charges). Unpaid property taxes are a debit to the seller (reducing the seller's proceeds) and a credit to the buyer.

Question 6

What is an escrow impound account, and which parties benefit from it?

Accepted Answer

An escrow impound account (also called a reserve account) is maintained by the mortgage lender. The borrower pays a monthly amount (added to the PITI payment) for property taxes and hazard insurance. The lender then pays these bills when due. This protects the lender's collateral (the property) by ensuring taxes and insurance are maintained — preventing foreclosure due to tax liens or uninsured losses.

Question 7

In a wet closing state, 'funding' at closing means:

Accepted Answer

In a wet closing (common in most Eastern states), the lender funds the loan on the day of closing — money is disbursed, documents are signed, and the deed is recorded the same day or next business day. In a dry closing (common in Western states like California), the documents are signed but funding and recording may occur 1–2 days later after the lender verifies all conditions are met.

Question 8

Transfer taxes (documentary stamp taxes) paid at closing are typically based on:

Accepted Answer

Transfer taxes (variously called documentary stamp taxes, deed taxes, or conveyance taxes depending on the state) are typically imposed on the sale price (consideration) stated in the deed. Who pays the transfer tax varies by state and local custom — in some areas it is the seller's responsibility, in others the buyer's, and sometimes it is negotiated. The rate and amount vary significantly by jurisdiction.

Question 9

Real property taxes paid in advance (prepaid) would appear on the closing statement as:

Accepted Answer

If the seller has prepaid property taxes for a period that extends beyond the closing date, the buyer owes the seller a reimbursement for the taxes covering the buyer's ownership period. This appears as a debit (charge) to the buyer and a credit (reimbursement) to the seller. Conversely, if taxes are paid in arrears and the seller has not yet paid taxes accrued during their ownership, the seller owes the buyer a credit.

Question 10

Which of the following closing costs is MOST likely to be a non-recurring cost paid only at closing?

Accepted Answer

A loan origination fee (points) is a one-time charge paid at closing to the lender for processing the loan — it does not recur. Homeowner's insurance, HOA dues, and property taxes are recurring costs paid throughout ownership. Recurring closing costs (like insurance prepayments and impounds) are sometimes called 'prepaids,' while non-recurring costs are fees charged only once at settlement.

Settlement & Closing Practice Questions

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