Mohamad Alodah asked:




By the time you are finished finalizing the purchase of a home you are going to see so many forms that you may start to have dreams about them. One common myth is that these mortgage loan applications are standard across the industry but the truth is that they vary from one lender to the next. In many cases these forms are specifically designed to protect the interests of the lender.

Required forms for home purchases

While the forms that are used will differ between lenders, there are three loans that are all required for all residential transactions. The 1003, or the loan application, contains your financial information like your income, debt and credit history and is commonly used to qualify a buyer for a loan. Then there is the Good Faith Estimate which is simply an estimate of the closing costs of the home.

The last form is the Truth in Lending statement which is essentially a detailed summary of the loan including the interest rate, finance charges and the monthly payments. These forms will start to look the same after you are exposed to more of them. However, you need to be sure that you understand the details of each form before you sign your name on the dotted lines.

Some extra precautions to take

As mentioned above the types of forms that lenders use for residential purchases will vary so you will need to read through each of them thoroughly. In situations where you do not understand certain terms or if conditions are not clear then it is in your best interest to consult with a lawyer. In many cases you probably do not need a lawyer but taking precautions will only serve to benefit you.

When it comes to the big lenders in the industry most of the mortgage documents are standard but it is still a good idea to read through each form. Always ask for these documents ahead of time so you can examine them in detail before you finalize the transaction. Just remember too that signing any mortgage documents with inaccurate information could lead to mortgage fraud charges.

Jeff

ItzMe asked:


So we are in a process of getting our house. Today we got a big envelope with Truth in Lending disclosure. It also has a loan company (bell homeloans) plus it says our lender is Sierra Pacific Mortgage, which probably means that the loan was sold or is being sold? Does this mean that we’ll most likely get our house soon?

CORY

Kristin Abouelata – Home Loans asked:


There’s a bunch of important points to review when considering a mortgage. And a ton of paperwork to look over. So much so at times it can be quite overwhelming. A Good Faith Estimate is one document to consider, and many people focus solely on it. But, in 1968, our lawmakers wanted to make sure lenders made it clear to the consumers just exactly what they were paying and that this information was consistently disclosed lender by lender. And for that, we have the Truth in Lending document, created by the Truth In Lending Act and outlined by Regulation Z.

The Truth in Lending document, or TIL as it’s affectionately known in the Biz, tells the consumer a lot about what he/she is getting into. It tells so much so that it can confuse a person, too. Thus, it is important to know and understand what it tells you. It allows one to make an informed decision. A TIL should be part of the beginning of the loan process and the end. When it’s all said and done, a mortgage customer should have reviewed an estimated TIL before closing, and then have also signed his/her final TIL at loan closing. The information found on the estimated TIL shouldn’t be too far off from the final TIL. If it is and you don’t understand the explanation for it, it’s time to put on the brakes.

A TIL will reflect your loan amount, interest rate and the amortization of your loan. A TIL comes in a standard layout, and most TILs will look the same from a distance, though there may be a few variations, like a payment reflection, lender’s logo, etc. But the nuts and the bolts should be identical in format.

The main thing you notice about TILs is they all have four boxes containing numbers stretched across their horizon. These boxes don’t mean much to you until they’re explained. But these are important numbers, which is why they are so blatantly highlighted in these little boxes. They shouldn’t be brushed off. If the TIL is an estimated or intial TIL, you’ll see a little “e” by the numbers in the boxes. Pretty straight forward – “e” means estimate. The final TIL you sign at closing should reflect all the numbers on your HUD-1 settlement papers and the “e” should be gone. That means you’re signing the final, real McCoy that is calculated by your final numbers.

The first box on the TIL reflects the Annual Percentage Rate (APR) or cost of your credit expressed as a yearly rate. Don’t panic, this rate is not your interest rate. It is the rate that the closing costs are actually costing you annualized over a year, and generally it is higher than your interest rate. However, if your mortgage is locked at a 5% interest rate, but your APR rate is 10%, you should reconsider the deal or get a second opinion. You’re paying too much.

The second box is the Finance Charge or the dollar amount the credit will cost you. It is the total amount of interest calculated at the interest rate over the life of the loan, plus Prepaid Finance Charges and the total amount of any required mortgage insurance charged over the life of the loan. The third box reflects the Amount Financed or the total amount credited to you on your behalf, minus Prepaid Finance Charges.

The fourth box is the one that gets most people’s attention – the Total of Payments. It’s the amount that a customer will actually pay back in principal, interest (and mortgage insurance, if applicable) if they keep the loan for the full term and stick to the outlined amortization schedule. Ouch. People find this number a little incredulous. I guess it really sends it home that mortgage lending is a business, and some company is going to make some money from it.

There are three other things on a TIL I like to point out to a customer. One is the late payment penalty. People need to know what it will cost them if their check gets to the Servicer late. It’s usually 4% or 5% of the monthly principal and interest payment, depending on the loan type. Another VERY important feature a lender should point out to a customer is if there is a PRE-PAYMENT penalty on the loan. A pre-payment penalty means that if you pay the loan off before a pre-determined time, you pay for the luxury of doing so. Make sure you know the terms of the pre-payment penalty if you should have one, and that you are certain you can live with it. They can be quite costly. Finally, the TIL tells you that should you pay off your loan early, you won’t be entitled to any of your closing costs or interest being refunded. In other words, don’t expect to get any of the money you have already paid back.

Simple enough, right? To tell you the truth, it is confusing, even for a mortgage lender. Take time to understand this document and ask all the questions you have regarding it. Don’t be shy.



DUNCAN