The federal government forces home loan lenders to provide a series of disclosures to those seeking financial assistance for a home purchase. These disclosures must be provided to the loan applicant within three days of signing the loan application. Disclosures must also be provided during the loan application/funding process. The purpose of the government requiring these mandatory disclosure is to protect home-seekers from the possible pitfalls of a process they do not completely comprehend. After all, searching for the right home and finalizing the deal can feel like information overload.
A Closer Look at Mortgage Disclosures
Mortgage disclosures provide important information about the mortgage. As an example, a mortgage disclosure might list all of the costs that will be incurred or provide details about an escrow account the lending party will establish. Disclosures are typically provided in a sequential manner as the mortgage transaction moves forward. The loan officer will provide the loan estimate when the applicant is completing the loan application process. This disclosure provides information from the truth-in-lending statement with the good faith estimate. If you do not receive the loan estimate disclosure within three days of filing for a home loan, you have not been properly informed of the costs and risks of the home mortgage.
Mortgage Disclosures Prior to Closing
Once your loan application is submitted, the broker or loan officer has a three-day window to provide a series of documents known as the upfront disclosures. The truth-in-lending disclosure statement (TILA) will likely be one of the first documents provided. TILA delves into the annual percentage rate or APR, the total monthly payment, the total amount of money financed, payment total, finance charge total, insurance requirements and so on. The Settlement Costs and Information document is provided by the United States Department of Housing and Urban Development. This booklet details the costs required to take out the loan.
The closing disclosure is provided three days prior to closing on the home. The closing disclosure is a combination of TILA and the HUD-1 Settlement. This disclosure shows the actual costs instead of the previously estimated costs. These charges can be disputed and renegotiated as they might be quite higher than the initial estimates.
The Good Faith Estimate and Beyond
The federal government also mandates home loan lenders provide a Good Faith Estimate. This document breaks down settlement costs. The Good Faith Estimate should provide an accurate look at the loan’s cost to originate. This estimate includes fees such as prorated interest, loan origination fees, loan points, appraisal fees, credit report fees, document preparation costs, etc.
The Initial Escrow Account Disclosure delves into the cash requirements for the closing and the rules for the escrow account. Some lenders intend to sell the loan’s servicing rights, meaning the ability to collect payments will be sold to another party. If this occurs, the Transfer of Servicing Disclosure Statement must be provided to explain the lender’s rights.
Once the loan process is finalized, the loan officer provides a separate series of disclosures for review and signature. This is the time to compare the new documents to those provided at the outset of the process. If there are differences between the documents, point them out. Make sure you have a copy of the loan disclosure documents to store in your files.
An annual escrow statement is provided for each year money is paid into the mortgage. The lender is required to transmit this statement to show the amount paid into the account. The annual escrow statement also shows the money the lender paid in taxes on the homeowner’s behalf. Finally, a servicing transfer statement must be provided if the loan is sold or transferred to another party.