Understanding Your Transaction Forms When Buying a Home

The Home Buying Transaction Forms

For most people, buying a home means getting a mortgage. During the mortgage application and closing process, you'll receive a few different forms intended to help you understand your transaction. A consumer protection law known as TRID, or TILA-RESPA Integrated Disclosures, “TILA” refers to the “Truth in Lending Act” and “RESPA” refers to the “Real Estate Settlement Procedures Act.” requires your lender provide you with a Loan Estimate and Closing Disclosure. Additionally, a Settlement Statement will be provided by your title company or settlement agent.

The Three-Day Waiting Period

Your lender will initially provide you with a Loan Estimate and later a Closing Disclosure to help you understand your loan costs and fees for settlement services. These are the services provided in a real estate transaction. Examples include title searches, document preparation, appraisals, inspections, etc. Familiarize yourself with the information on these important forms and ask your lender any questions you may have about your loan or the related fees. The government requires that you have at least three days to review the Closing Disclosure before closing. “Closing” is the final step in buying a home or getting a loan. This is when the transaction documents are signed, and the money is collected and disbursed. Any major changes to your mortgage, like the loan type or interest rate, will trigger a new set of disclosures and a new three-day waiting period.

Loan Estimate

The Consumer Financial Protection Bureau (CFPB) requires your lender to provide a Loan Estimate to you within three business days of receiving your mortgage application. The Loan Estimate details the terms of your loan like amount, interest rate, and loan type, and provides an estimate of:

• Closing costs, including service fees, loan costs, taxes, and other expenses
• Your monthly mortgage payment
• Charges that will be held in an escrow or impound account Many mortgage lenders require an escrow account, which holds amounts for things like property taxes and homeowners insurance. Lenders want to make sure taxes are paid so they do not lose the property to a tax foreclosure. They also want to be sure that the property is protected by insurance in case of a disaster or other event that may cause property damage. A portion of your monthly mortgage payment goes into the escrow account.
• Cash needed to close the transaction

Services

You can shop around for some of the services listed in your Loan Estimate, which means you can choose your own provider. There is no limit on price increases if you select a service provider that is not on your lender’s approved list. For services you are not allowed to shop, your lender is bound by the cost quoted in the Loan Estimate. You can learn about other limits on fee increases on the CFPB website.

Comparisons

The final page of the Loan Estimate lists information that can help you compare the loan terms with other loans:

• How much you will pay in the first 5 years
• Your Annual Percentage Rate (APR), which is the amount of interest and fees you will pay each year, as a percentage of your loan amount
• Your Total Interest Percentage (TIP), which is the total amount of interest you will pay over the loan term, as a percentage of your loan amount

Other Considerations

The Loan Estimate also advises you about:

• Your right to receive a copy of your property appraisal
• Whether your loan can be assumed This means that you can transfer your mortgage to someone else, typically a buyer of your property, and they become responsible for the rest of the mortgage payments. by someone else
• Whether you are required to purchase homeowners insurance
• Your lender’s policy on late payments
• Conditions on refinancing A refinance is when a current debt is replaced by a new loan with different terms. Property owners often refinance their mortgage loan for a lower interest rate, which reduces their monthly payments.
• Whether your lender plans to keep or transfer your loan

Keep in mind that signing the Loan Estimate does not bind you to the loan and you are free to explore other financing options.

Closing Disclosure

The Closing Disclosure is also required by the CFPB, and you'll receive it at least three business days before your transaction closes. The Closing Disclosure contains the information provided in the Loan Estimate, but the details and figures are now final. Compare the Closing Disclosure with your Loan Estimate to make sure that the final figures are accurate and have not increased more than legally allowed. The Closing Disclosure will provide you with a calculation table for comparison that shows which figures have changed.

The Closing Disclosure also provides additional information about the following:

• Whether you will be charged a penalty for paying off your mortgage early
• Whether your lender can demand repayment of the loan in full at any time
• Whether your lender will accept partial payments
• Escrow account Many mortgage lenders require an escrow account, which holds amounts for things like property taxes and homeowners insurance. Lenders want to make sure taxes are paid so they do not lose the property to a tax foreclosure. They also want to be sure that the property is protected by insurance in case of a disaster or other event that may cause property damage. A portion of your monthly mortgage payment goes into the escrow account. requirements
• Total of all payments you will make over the loan term
• Your finance charge, which is the amount the loan will cost you
• Your liability after foreclosure If you fail to make your mortgage payments, your lender may foreclose, meaning they can force the sale of the property and apply the money from the sale to your loan balance. If the property sells for less than what you owe, you may be responsible for paying the additional amount.
• Tax deductions

The last page of the Closing Disclosure contains contact information for those helping you with your transaction, like your lender and settlement agent.

Settlement Statement

You'll receive a Settlement Statement from your title company or settlement agent when you close your transaction. This document details the final costs and fees paid and may be helpful for your records and taxes. A Settlement Statement will often include the following:

• Sales price and loan amount
• Property taxes allocated between the buyer and seller
• Loan charges
• Homeowners insurance premium
• Title charges, including the title search fee and premiums for title insurance
• Commissions paid to real estate agents
• Recording “Recording" is the process of placing a document, like a deed, in the public records. Each county has its own system and requirements for recording documents.
  fees and transfer taxes
• Lien A lien is an interest in property for a debt that is owed. If the debt is not repaid, the creditor can force the sale of the property and apply the money from the sale to the debt. Mortgages, unpaid real estate taxes, and court judgments are examples of liens. payoffs, like the seller’s mortgage

Additional Resources

For more information, visit the CFPB’s website. There you can explore helpful interactive guides for the Loan Estimate and Closing Disclosure, learn more about mortgages, and understand your rights.