Mortgage Closing Documents And Disclosures On Home Purchase
This article is about Mortgage Closing Documents And Disclosures On Home Purchase
Most people are overwhelmed with how much paperwork is needed to purchase a home or refinance their mortgage. I’m going to break down some of the primary mortgage closing documents borrowers will be signing during this process. This will help borrowers understand from start to end of the mortgage application process.
Mortgage closing documents may seem confusing and many times redundant. There are strict rules and mortgage lending regulations with regards to disclosures, re-disclosures, and mortgage closing documents. The mortgage loan approval process is a long process. Lenders need to make sure that all mortgage closing documents are properly disclosed, dated, and signed by all parties.
Mortgage Application Process
The first thing I’ll go over is the standard mortgage application a.k.a. 1003 (Ten 03), or officially known as the Uniform Residential Loan Application. This might be the most important step and the most important mortgage closing documents which can lead to having a smooth and problem-free process or a bumpy, frustrating process.
The application includes several important sections that collect information, personal finances, and the details of the potential mortgage. Borrowers will be providing personal information such as Social Security Number, Date of Birth, Marital Status, and contact information. During this process, borrowers will need to provide documentation on income, expenses, assets, and liabilities.
Borrowers need to disclose if they have any pending legal problems or current issues affecting finances. This along with a credit report will help the lender assess the ability to pay the proposed mortgage.
Borrowers need to also provide information on home or potential home purchases. The loan officer should provide a pre-approval/pre-qualification letter that will state the number of loan borrowers are pre-approved for. This is a top-end number and the purchaser needs to decide if they want to max out the purchase and if they can live comfortably with that payment.
Important Mortgage Closing Documents
Once the application is finished borrowers will receive The Loan Estimate (LE). The LE will summarize the costs associated with the loan.
Examples on the LE are the cost and fees such as the following:
- credit report
- title costs
- pre-paid items(ex: property taxes and homeowners insurance)
The GFE summarizes how much money borrowers will need in bank accounts at closing, this includes closing costs and down payment.
The TIL is part of the Consumer Credit Protection Act and requires lenders to give information pertaining to the following:
- Loan Origination fees
- payment schedules
- borrowers’ rights to rescind the application within a certain timeframe without being charged
- The act requires lenders to give borrowers a LE within 3 business days of a loan application
The old Good Faith Estimate and Truth In Lending Disclosures are not the Loan Estimate.
The old HUD-1 Settlement Form has been replaced by the Closing Disclosure. This Statement will show borrowers all fees and services associated with the closing of the home loan, which typically will range from 2% – 6% of the loan amount.
Other Mortgage Closing Documents
The mortgage note is very important. This is the document of the mortgage closing documents that borrowers will sign at the closing which states borrowers will promise to pay back the loan according to the terms in which agreed upon.
The Mortgage Trust Deed is the legal document that transfers the deed to a trustee(third party) to hold a security for the lender. Once the loan gets paid off the trustee then transfers the title back to the borrower. The house itself is the lenders’ security that borrowers will pay back the loan. If failure to pay off the mortgage occurs the lender can sell the house to pay off the mortgage debt.
The seller signs the deed at the closing to transfer ownership to the buyers. The title will be supplied to home buyers in the form of a copy because the original will be held by the 3rd party until the mortgage is paid off.
The statements will state and have borrowers affirm that all the information provided is true. This is where it says borrowers will live in the house and it will be the primary residence. This also will have borrowers sign that they will keep the house in good repair.