Your real estate sales contract is signed. What happens next?
Most people shop for a mortgage loan. When you apply for one, you’ll get a sheaf of loan documents. Ask your Realtor, your lender and your attorney for help if you need it, so you can understand the loan terms thoroughly. Lenders say two loan disclosure documents are the most important.
“The Truth-in-Lending Statement and the good faith estimate give (the buyers) the basics of what their loan costs are,” said Ron Lapins, area manager for Commonwealth-United Mortgage in Grayslake and a director of the Illinois Mortgage Bankers Association.
“In real dollars, it tells them what they have to bring to closing. And the annualized percentage rate (APR) will give them the ability to compare,” he said.
Equally important is the required information booklet from the U.S. Department of Housing and Urban Development about settlement costs.
“That explains the whole process. I would use it to understand each step to closing,” said Kenneth Hall, compliance counsel for National Westminster Bancorp and author of the “Mortgage and Consumer Loan Disclosure Handbook.”
“All of these disclosures have a good purpose, but they’ve made a mortgage application a lengthy process,” said Steve Dryer, President of Eagle Mortgage in Wayne, Penn.
First, let’s look at documents applicable to all mortgages, at the time of application for a loan:
– Good faith estimate. Required by the Real Estate Settlement Procedures Act (RESPA), a federal law, for all mortgage types, and all federally-regulated mortgage loans. This is a basic cost itemization, but at this stage, it’s only an estimate.
Lenders must, to the best of their ability, give borrowers a list of all charges for the loan that will be made by the lender or by third parties. Either a dollar amount or a range must be stated.
Also, it must contain names, addresses and phone numbers of each provider of services. You can shop and compare for some services. There are 50 to 60 items and charges that may appear on your loan estimate.
– Truth-In-Lending Statement. Provides key information about financing, including the amount financed, the total finance charges and the annualized percentage rate (APR), which is the cost of your credit stated as a yearly rate.
If the rate can change during the loan term, this must be specified. If the rate changes before closing, you must be given a revised copy.1
– Settlement costs booklet. A consumer booklet from HUD must be furnished to the buyer. “Settlement costs” means all the costs involved in the real estate transaction.
The booklet is in two parts: first, the settlement process and charges and the consumer’s rights; and an item-by-item look at settlement services and costs.
– Mortgage servicing disclosure. The lender must tell whether the servicing of your mortgage loan may be sold to another lender whom you would send your payments to; servicing is the process of collecting loan payments and insurance and other escrow amounts.
Adjustable mortgages trigger the following additional loan disclosures:
– Consumer Handbook on Adjustable Rate Mortgages, published by Federal Reserve Board. This booklet must be given to adjustable rate mortgage borrowers when they’re furnished with application forms.
– An ARM loan description. Explains how the loan works, with examples of adjustments, and worst-case scenarios. The consumer can get such disclosure forms for any of the lender’s variable-rate loans.
Later, after the loan application, there’ll be more disclosure documents including the following:
– Notification of action taken on your application. Your application must be approved or denied within 30 days or the lender must tell you what additional information is needed to reach a decision. If you’re denied, the lender must tell you why.
– Notice of Use of Credit Report. The lender must disclose any credit bureau reports that were used as a basis for denial of a loan. Consumers have a right to request from the credit bureau copies of the credit reports that were used to make the decision to deny them a loan.
For more information contact the Federal Trade Commission in Washington or the nearest FTC regional office.
Disclosures by the time of closing:
– HUD-1 statement of closing costs. The lender must give out a copy of the Uniform Settlement Statement (HUD-1). This includes all charges to be paid by a borrower and seller at closing.
