How to Keep Good Home Purchase and Refinance Files

There are up to 16 important documents listed and described below, which you normally receive before, at or  soon after settlement. We urge you to file them in one easy-to-find place. These documents can be a big help if someone claims interest in your title, if you refinance or sell, if you find termite infestation or damage, if you want to build a fence or a home addition, when you adjust your home insurance, when you have an insurable loss, etc.  Assuring receipt of the 8 to 16 documents and storing them in an easy to find place is very important.

files

Note: It is highly preferable to obtain copies of completely signed and notarized documents at settlement.  It is common but far less desirable to be given a copy package of the unsigned documents.

  1. The HUD-1 Settlement Statement shows most all expenses of purchase except a few expenses paid in advance. The HUD-1 also tax return information, the settlement date and attorney/ title company.

  2.  The Deed of Trust (Mortgage) Promissory Note(s), and accompanying Deeds of Trust, provide essential terms of your mortgage financing such as interest rate, term, type of mortgage, etc.  The note is your promise to pay. Legally, in DC, the term “deed of trust” is used instead of “mortgage"

  3. The Deed of Trust secures your loan as a lien on your homeThis document, recorded in DC against your deed says, in summary, “if you pay, you stay; if you don’t, you won’t.” It specifies lender actions if you don’t make payments, maintain insurance, allow your home’s condition to deteriorate, don’t continue to live in your home, etc. The ultimate lender action if the borrower defaults in any specified way is foreclosure, the forced sale of your home to pay back the loan and any fees due the lender.

  4. Restrictions on Refinancing and Early Payoff on Some 2nd, 3rd, and 4th Deeds of Trust. With few exceptions, if an owner of a home with an HPAP second mortgage does a refinance to take out cash for any purpose, the HPAP mortgage must be paid in full. Some existing third or fourth subordinate mortgages for low and moderate income buyers require no payments and provide for gradually forgiving loan principal on a monthly or yearly basis until all principal has been forgiven.  These subordinate mortgages usually require that they be paid in full or in part if the owner sells before the end of the forgiveness period or if the owner obtains a new “cash-out” refinance.

  5. Affordability Covenant, if Applicable.  You may be required to sign an “affordability covenant” at purchase if you receive benefits such as a discounted purchase price which makes the property affordable. You agree to limitations on your equity if you sell before the end of a specific term such as ten years.  Each affordability covenant is different.  It is important that you fully understand the terms of the covenant before you purchase the property. Then you can plan for the future without surprises.

  6. Mortgage Insurance Terms, If Applicable.  Mortgage insurance(MI) will be required to insure the lender for the mortgage amount above 80% of the property’s value. Be sure to obtain from the lender the terms for dropping the MI payments. Generally, MI can be dropped in 2 years if an appraisal shows that the mortgage is less than 75% of the property’s value or in five years if an appraisal shows the mortgage below 80% of value. Dropping MI depends on principal pay-down and value increase.

  7. Title Insurance Policy.  a). This insurance insures your ownership against claims from others. b) The title policy tells you what is covered. Note carefully anything excluded from coverage. On a purchase or refinance, assure that any prior mortgages are released from your title. c) Your title policy also notes any rights of way on your property, e.g., utility pipes and wires, driveways, etc., or your property’s encroachments, like “your” fence on parkland or on a neighbor’s property. d) Your original title policy can save you many dollars on a refinance so ask for the “reissue discount” available on the new policy.  e) Your title policy arrives many weeks after settlement. Look out for it and file it safely.

  8. House Location Survey (Not applicable for most condominium owners). This survey may save you $100 or more at settlement if you refinance in the future.  It will help in planning an addition to your home, a deck or a fence by showing approximate property lines and location of rights of way.  Often the settlement agent overlooks giving you your survey so be sure that you receive it. 

  9. Termite Inspection Report.  Termites in Washington can seriously damage wood in short order. Annual periodic termite inspection and a chemical treatment every 7 years are highly advisable.  ForFiles to Keep a condominium, especially if it has 20 units or less or if your unit is below the fourth floor, assure that your condominium association maintains a termite control contract for inspection and treatment.

  10. Homeowner’s Fire/Hazard Insurance Policy. Your deed of trust requires insurance coverage for fire, storm and other damage. Keep your policy handy in your purchase file and review it annually for coverage amounts and riders for valuables.  Lenders don’t usually require fire and hazard insurance for individual condominium units, just for the structure. However, it would be essential for you in the event of fire since your own improvements to the interior like new cabinets and appliances and your furniture and belongings would be your responsibility. 

  11. House or Condominium Structural and Mechanical Inspection Report. This report is valuable when planning an annual home maintenance program and for better understanding structural or mechanical problems in the future.  This report usually comes with a thick, detailed notebook of information about your particular home and about essential maintenance.

  12. Five Year Property Tax Abatement Application, If Eligible. Keep copies of your Tax Abatement application and five-year tax exemption letter, which comes 60 days after settlement.  

  13. Annual Property Tax Assessment and Semi-Annual Property Tax BillsKeep copies of all your  assessments and tax bills. See www.otr.cfo.dc.gov, Real Property Service Center. 

  14. Proof of Release of Paid-in-Full Deeds of Trust (DOT). If your’s or a seller’s mortgage(s) are being paid off at settlement, ask the settlement agent 30 days after settlement for written verification of the release(s) from your title.  Old DOT’s later found unreleased can cause delay, costs and headaches.

  15. Property Appraisal.  After settlement, your appraisal can provide information about your home and neighborhood, information for refinancing, amounts for property insurance, and for other purposes.

  16. Credit report. This report is a reference and starting point for periodic review of your credit status.