February 18th, 2016 6:09 AM by Jackie A. Graves
When it comes
to buying a home, knowing your way around the paperwork will help you feel more
confident on closing day.
in October 2015 require home buyers to sign new documents during
the mortgage process. Here’s a look at what has changed, and what you’ll
be signing if you buy a home now.
Mortgage disclosure law changes in 2015
financing homes in the U.S. are protected from fee abuses by two main
regulations: the Truth In Lending Act (TILA) and the Real Estate Settlement
Procedures Act (RESPA).
TILA and RESPA protect you from closing cost abuses and prevent housing service
providers (like lenders, real estate agents and title companies) from giving
each other referral fees for your business.
Financial Protection Bureau (CFPB) enforces TILA and RESPA, and on October 3,
2015, the CFPB combined all previously required mortgage rate and fee
disclosures into two simple forms to make it easier for consumers to understand
their mortgages. This initiative is called the TILA-RESPA Integrated Disclosure
The Loan Estimate and Closing
The two forms
TRID created are called the Loan Estimate and the Closing Disclosure.
Estimate must be provided to you within three days of applying with a lender,
and it replaced the Good Faith Estimate and Truth In Lending disclosures home
buyers used to get prior to October 3, 2015. It details loan terms,
projected payments over the life of your mortgage, and line item closing costs.
Disclosure must be provided to you at least three business days before closing
on your mortgage, and it replaced the final settlement statement, which was
also known as the HUD or HUD-1. It looks almost exactly like the Loan Estimate,
but adds a breakdown of costs paid by buyer versus seller versus third parties.
This means you’re reviewing final terms in the same format you saw in the Loan
Estimate initially, and you’ve got three days to digest it before you close.
Make sure you
read and understand the specific timing rules lenders (and you) must follow
with these disclosures when closing a home purchase or refinance, because they could affect how long it takes to complete the mortgage
If you agree
to go forward with closing after the Closing Disclosure’s three-day waiting
period, you’ll also need to sign a full set of loan documents. Among those, the
following two are most important.
The promissory note (aka “the
The note is
your loan contract, and contains the terms of your loan (such as 30-year fixed
or 5-year ARM); specifies the rate, payment intervals and payment changes along
the way; and states whether you’ll incur a prepayment penalty if you pay off
the loan early.
In the note,
you agree that your home is security for the loan, so your lender will have a
claim to your property if you don’t repay according to the note’s terms. This
note provision will refer to a separate document that’s the “security
instrument,” called a mortgage or a deed of trust.
The security instrument (aka
“the mortgage” or “the deed of trust”)
Both a mortgage
and a deed of trust pledge the property as security for the note. Fannie Mae provides a list that specifies
which states require mortgages vs. deeds of trust so you know which one you’ll
sign along with your note based on where you live.
the loan you choose, you’ll need to comply with one of these three occupancy
provisions contained in all mortgages and deeds of trust:
Owner-occupied. You must move into the
property within 60 days of closing and live there as your primary residence for
at least one year. Then you’re allowed to use it as a rental or a second
Second home. You can only use the
property as a second home and aren’t allowed to rent the home.
Non-owner-occupied. You’re paying a higher
rate for this loan, so you’re free to convert occupancy to owner-occupied or
second home if and when you see fit.
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