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Mortgage Application: Disclosures You Should Receive After You Apply

Monday, May 12, 2014 - Article by: Lender411 Member

After you apply for a mortgage, you should receive two disclosure forms: the Preliminary Truth in Lending Disclosure Statement and the Good Faith Estimate. The Truth in Lending Act, also known as Regulation Z, requires the lender to provide you with these two disclosures no later than 3 days after you applied. You can get a sense of these forms by looking at the Consumer Financial Protection Bureaus provided sample here:

The function of these forms is to help you evaluate the offer you got when you applied for a mortgage with other offers. So lets take a deeper look at the information you can expect from each of these:

The Preliminary Truth in Lending Disclosure Statement, also known as TIL, includes:

  • information that identifies the loan originator and/or lender issuing the disclosure
  • information that identifies you (i.e. name, address, phone number, etc)
  • the Annual Percentage Rate, or APR: this percentage figure is relative to the amount financed, and it does not represent the interest rate of the loan. Generally, this figure will be higher than loans interest rate
  • the Finance Charge: this amount will reflect the interest and charges you will pay for the life of the loan as if you were not to refinance, and as if you were to pay according to the scheduled terms until the mortgage is fully paid
  • the Amount Financed: this amount will be less than your loan amount; the difference will be made up of the origination fees (points, lender fees, mortgage insurance, tax service, etc). In other words, the amount financed will exclude the fees related with the transaction, and this number will reflect only the pure home financing amount
  • the Total of Payments: this amount includes the Finance Charge, the Amount Financed, and the Mortgage Origination Transaction Fees
  • the Interest Rate and Payment Summary: this is a table with the schedule of payments to be made for the life of the loan. For example, if you have a 30-year fixed term loan, you would see a schedule that includes some distribution of 360 payments
  • The following are specifications and clauses of the loan:
    • Demand Feature: indicates whether the loan includes any demand features. If your loan HAS a demand feature, this information field will include a description of the clause.
    • Variable Rate Feature: checked if your loan is of variable rate terms
    • Security: the address of the property you will finance
    • Assumption: yes/no; this is a clause limiting your ability to pass the loan to a future buyer of this property
    • Property Insurance: whatever property insurance requirements you may have as it relates to the loan
    • Late Charges: the late payment penalty terms
    • Prepayment: loan prepayment clause; this will establish what happens if you prepay your loan
  • section for the future signatures of all loan named borrowers if you accept the offer and your loan is approved

The Good Faith Estimate, GFE, must include estimated fees and costs you may pay if you take this offer. As the name of this disclosure implies, the numbers quoted in this form are but an estimate of the final closing costs; some of these costs may differ at closing time, and I include a list of what costs and fees may change later in this post.

The GFE will include:

  • information that identifies the loan originator
  • information that identifies you, the borrower
  • Important Dates regarding this estimate: a limit date for you to follow through the terms offered by this offer and for the costs listed in the estimate. This section also lists the days you have to settle this offer, and the days you have to lock in a rate
  • the Summary of Your Loan:
    • loan amount
    • loan term
    • initial interest rate
    • can you interest rate change
    • can your loan amount rise?
    • can your monthly payment rise?
    • does the loan have a prepayment penalty?
    • does your loan have a balloon payment?
  • Escrow Account Information
  • Summary of your settlement charges
    • two figures which add up to the Total Estimated Settlement Charges
  • breakdown of Estimated settlement charges
    • origination charge
    • point fees
    • adjusted origination charges
  • list of charges which can change at the time of settlement
    • required third party services
    • title services and lenders title insurance
    • owners title insurance
    • required services you can select
    • government recording charges
    • transfer taxes
    • initial deposit in escrow account
    • daily interest charge
    • homeowners insurance
  • Instructions of which charges may change, and to what level, comes closing time

As I mentioned before, some fees/costs may change, and you choose the loan associated with these disclosures, you will be better prepared comes closing time. As the form instructions stated, you can expect:

  • charges that cannot change at closing time
    • origination charge
    • credit charge for the interest rate once you lock it
    • adjusted origination charges
    • transfer taxes
  • charges that may change by no more than 10%
    • required services selected by the lender
    • title services and lenders title insurance
    • your title insurance
    • required services that you select
    • government recording charge
  • charge that may change, and are not limited to a maximum
    • required services you select
    • title services and lenders title insurance if you select a different provider from the one your lender listed in this estimate
    • you title insurance if you choose a different provider that the one the estimate suggests
    • the initial deposit for your escrow account
    • daily interest charges
    • homeowners insurance

As you can see, some of the changes will depend on the choices you make. If you prefer different service providers than the ones your loan officer proposes, you will control some of these costs. Alternatively, your loan officer may suggests service providers that are truly the best service and cost.

The GFE also provides you with a table that helps you evaluate the tradeoff between lower settlement charges (which means higher interest rate) or a lower interest rate (higher settlement charges). If you can afford higher settlement charges, use the table to evaluate if it makes sense for you to pay for a lower interest rate.

Lastly, the FGE provides you a handy table for you to compare the associated loan offer with other offers.

These forms conform to current Fair Lending Act, Regulation Z, requirements. However, next year, a new form will replace these forms, and we will be required to use the Loan Estimate disclosure form on the 1st of August, 2014 . You can take a look at a sample of the upcoming form here:

The law instituted these disclosure forms to help you through choose a mortgage offer that suits your needs and resources. Invest the time to go over these forms carefully. Whenever you have a question, ask your loan officer to help you understand. Dont be shy. Loan officers want any excuse to converse with you. In fact, when you ask question, you give the LO an opportunity to show you his knowledge, ethics, and professionalism.

If applied for a mortgage and your lender/broker failed to provide these disclosures to you within three days from your application, you may file a complaint with the Consumer FInancial Protection Bureau.

Here, the bureau provides you with a Q&A about these disclosures:

Here, you can file complain with the Bureau:

At Nations Lending Corporation, we help our branch partners grow their referral business. To help loan officers communicate with realtors and manage borrowers expectations, we are committed to keeping partners in the loop through all stages of the approval process. This is only one of the benefits we offer through our mortgage branch opportunities. Although we are not a net branch company, and offer no mortgage net branch opportunities, our partners benefit from bundled solutions that help them build sustainable businesses. Please visit our website to learn more.

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