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Before You Close: Understanding Transaction Disclosures

When you get a mortgage you will receive some important disclosures that are required by law, these disclosures are to help you understand how the loan costs and settlement services add up and include the Loan Estimate, Closing Disclosure and Settlement Statement.

By Endpoint Closing Team

Generally, you’ll receive your Loan Estimate and Closing Disclosure from your lender, while your Settlement Statement will be provided by your Title Company, Escrow Officer or Settlement Agent

You will have a minimum of three days to review the forms before your closing. If there are any major changes to your mortgage, like switching loan type from a fixed to adjustable rate mortgage, or an increase in the mortgage rate, this will trigger a new set of disclosures and require an additional three day waiting period before you can close. When you are managing a tight schedule to move into your new home, any delay in closing could leave you stranded without a new home to move into, so be sure to coordinate with your Mortgage Lender and Escrow Officer to ensure your details are all buttoned up. Endpoint is a great tool to help with this. Let’s dive into the disclosures.

The Loan Estimate

Previously known as the Good Faith Estimate (GFE), the Loan Estimate is the quote of costs and terms the mortgage lender should have provided you within 3 business days of receiving your completed loan application.  The loan estimate is a standardized three page document that provides information about your potential mortgage loan, this includes:

  • Interest rate
  • Whether the rate is locked or floating
  • Loan amount
  • Loan term
  • Whether it is a fixed or adjustable rate loan
  • Monthly payment breakdown
  • Estimated closing costs
  • Estimated cash needed to close the transaction
  • APR
  • Total interest paid and percentage

Closing fees in the loan estimate are separated by those you can shop for and those you cannot. If your lender will not allow you to shop for a service, like a home appraisal, then it is bound to honor the figure quoted in the loan estimate. For services you can shop for, you are free to find a third party service provider of your choosing. If you choose from the lenders quoted list of third party service providers, your quoted figures carry a 10% tolerance, meaning they cannot increase by more than 10% in the aggregate at closing. If you select a vendor not on the list, the 10% tolerance does not apply. If there are any significant changes in the loan process, the lender needs to send you a new Loan Estimate.

The Closing Disclosure

After your purchase offer has been accepted and before your transaction closes, you will receive your Closing Disclosure, a document your lender is required to send to you at least 3 business days before you sign your mortgage agreement (on closing day). The Closing Disclosure is a standardized five page document that offers more detailed information about your loan and real estate transaction. This form includes:

  • The general terms of your mortgage
  • Your projected loan payments
  • Important loan disclosures, such as the lenders policy on late or partial payments
  • Itemization of your closing costs
  • The total amount of cash needed to close the transaction
  • Which closing costs have been paid or when they should be paid and by whom
  • The rights you hold in the transaction
  • Contact information for the professionals assisting you with the transaction

The closing costs should align to what was provided to you in the Loan Estimate, within the tolerance limits outlined above. A table comparing your closing figures with those in your loan estimate should be provided as part of the Closing Disclosure.

If major changes to your mortgage occur, like an increase in APR above a certain threshold, an addition of a prepayment penalty, or a change in the overall loan product, your lender will be required to send you a new Closing Disclosure and you will have an additional 3 business days to review it before the transaction closes. If there are any discrepancies, don’t be afraid to ask questions. Ask them right away. Make sure you understand the reason for any changes. Don’t be afraid to complain if there isn’t a valid reason for them.

The Settlement Statement

You’ll receive a Settlement Statement from your Title Company at the close of your transaction. This document provides an even more detailed breakdown and accounting of all funds moving through escrow in the transaction. This includes all of the fees and costs, and all of the debits and credits to the buyer and seller in the transaction, as well as the final amounts of funds required from and paid out to each party.

This can be an incredibly confusing document for first time home buyer and seller. Yet, it is also an important one. Make sure you ask all the questions you need to. A good escrow officer, mortgage loan officer and real estate agent should be more than happy to repeat themselves until you are happy.

This form will be an official record of what you paid and sold the property for. Pay special attention to mortgage payoffs and net proceeds listed if you are the seller. This will determine how much in taxes the IRS will believe you owe. Any mistakes can mean you are billed more than you should really owe.

Other Forms & Disclosures provided at closing

Along with these key documents you will also likely find a full stack of other forms and disclosures provided to you at closing. This can include:

  • A copy of the final mortgage loan application
  • Deed transfer from the seller to the buyer
  • Disclosures about the property
  • Confirmation of receiving disclosures
  • The promissory note (the borrowers promise to repay their mortgage)
  • Details of any prepayment penalty
  • Mortgage fraud warnings
  • Any deed restrictions applied in the transaction

Read them. It’s tempting to just sign and initial away. Yet, mistakes happen. These numbers can’t be changed after the transaction is complete. There can be severe consequences for real estate and mortgage fraud. If it isn’t accurate and true, don’t sign it. Request that form to be corrected. Endpoint will provide all these documents and more to walk you through the closing process step-by-step. Don’t hesitate to get in touch with your escrow officer using in-app messaging or phone, we would be happy to explain this to you!

 


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