What A Lender Must Disclose
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
What Lenders Must Disclose
When applying for a mortgage, it's crucial to understand the information that lenders are legally required to disclose. This helps you stay informed about potential charges, rates, and loan ownership.
Key Disclosures
Good Faith Estimate
Under the Real Estate Settlement Procedures Act (RESPA), lenders must provide an estimated list of closing (settlement) costs. These may include processing fees, appraisal or inspection fees, credit report fees, and mortgage insurance application fees. The Department of Housing and Urban Development (HUD) offers an itemized list of these costs, and lenders are required to provide borrowers with a HUD brochure about the home-buying process. Remember, closing costs are separate from the loan amount and are usually paid upfront.
Truth in Lending
The federal Truth-in-Lending Act ensures borrowers are aware of loan terms and conditions, allowing for effective comparison between loan programs and lenders. Lenders must disclose the annual percentage rate (APR), representing the yearly cost of credit to the borrower. This figure may include indirect charges like appraisals and credit reports if they're covered by loan payments.
Transfer of Servicing
Lenders must also disclose their intentions regarding loan servicing, often referred to as selling the loan. This involves transferring the rights of payment collection. It's common for loans to be sold at least once during their lifespan. While servicing changes don't affect the borrower directly, they may alter where payments are sent. Lenders should inform you about the percentage of loans they've transferred in the past. Additionally, for adjustable-rate mortgage (ARM) applicants, lenders must provide a maximum cap for monthly payments.
Additional Considerations
Beyond these mandated disclosures, inquire about prepayment penalties. Loans with such penalties might offer lower interest rates. If you're considering early or double payments on your mortgage, make sure to discuss potential penalties with your lender.
By familiarizing yourself with these important disclosures, you can make more informed decisions during the mortgage process.
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