Understanding Mortgage Disclosures
Outlining Your Loan & The Costs Involved
Once your mortgage application process is complete and you are approved, you will be provided with a package of documents called your “Initial Loan Disclosures” (with the exception of applications at the pre-approval stage without a property yet selected). These documents will outline the terms and costs associated with your home loan. There are a few key documents that you should review carefully and some documents that should be signed and returned to BCU for us to begin processing your loan. You will receive additional instruction on this at the time your disclosures are sent. The most important documents that outline the terms of your loan are the Good Faith Estimate and the Truth-in-Lending Disclosure Statement.
Good Faith Estimate
The Good Faith Estimate (GFE) provides you with an estimate of your mortgage loan terms and costs to complete your mortgage transaction. We will walk you step-by-step through the GFE.
Important Dates: The Important Dates section includes important dates and timeframes about the pricing of your loan that you need to be aware of.
- Date your interest rate offer is good through. If your rate is locked, this should reflect your lock expiration date.
- Date “All Other Settlement Charges” is good through. It will be a minimum of 10 business days from the date the GFE was issued.
- Interest rate lock period in number of days. This does not mean your rate is locked. If your rate is not locked, it should say “NA”.
- The number of days prior to closing your loan that you must lock your interest rate. This should be a minimum of 10 day prior to your closing. If your rate is locked, it should say “NA”.
Summary of Your Loan
The Summary of Your Loan section discloses your loan amount, loan term, the initial interest rate, and your initial monthly payment including principal, interest, and any mortgage insurance (if applicable). It also tells you if your interest rate can increase, if your loan balance can rise, if your monthly payment for principal, interest, and mortgage insurance can increase, and whether or not your loan is subject to a pre-payment penalty or a balloon payment.
Escrow Account Information: The Escrow Account Information section indicates whether or not an escrow account is required on your loan. An escrow account holds funds needed to pay property taxes, homeowners insurance, and flood insurance if applicable. BCU generally requires an escrow account on home loans over 80% Loan-to-Value. If an escrow account is required or chosen by you for your loan, you will have to pay an initial amount at your closing to start the account. If an escrow account is not required or requested, you must pay all taxes and insurance items directly when they become due.
Many members choose to take advantage of an elective escrow account with their mortgage loan. If you choose to establish an escrow account, and it is not required based on the terms of your loan, you will have the flexibility to escrow both your taxes and your insurance OR you may choose to escrow just one and pay the other directly when due. Ask us about these convenient options!
Summary of Your Settlement Charges
This section is broken down into two categories and provides details of the costs and fees associated with your loan.
Adjusted Origination Charges
This is the sum of the origination charges and any credits or points paid for the specific interest rate on your loan. These are the charges to originate and process your loan. The price of a mortgage is stated in terms of interest rate and closing costs. You have the option to pay lower closing costs in exchange for a higher interest rate and also the option to pay higher closing costs in exchange for a lower interest rate. Talk to your Home Loan Consultant to find the best option for you.
Charges for Other Settlement Services
This section includes the other fees associated with services required for your home loan. Some common fees you may see in this section are listed below.
- Appraisal Fee: The fee paid by the lender on your behalf for the cost of your appraisal used to assess the value of your home.
- Credit Report: The fee paid by the lender on your behalf for the cost of the credit report pulled to assess your credit history.
- Flood Certification: The fee paid by the lender on your behalf for the cost of your Flood Certification. A “flood cert” is required on every loan to determine if your home is in a flood zone and will require flood insurance coverage.
- Title Services and Lenders Title Insurance: The fee paid at settlement to the title company to search county records, making sure that the home you are financing is free of any complications such as tax liens or unreleased mortgages you were not aware of.
- Owners Title Insurance: The fee paid at settlement on purchase transactions. The Owners title policy protects your interests.
- Services That You Can Shop For: The fees associated with required services that you can shop for. Some of these items may include a home inspection, survey, pest inspection, or attorney fees.
- Government Recording Charges: The fee paid at settlement that is required to record the deed, the mortgage, and documents related to the loan.
- Transfer Taxes: The fee paid at settlement for taxes related to the mortgage and to transferring title to the property to you.
- Initial Deposit for Your Escrow Account: This is the money that you must pay in advance in order to establish your escrow account, if applicable. The amount required to set up this account depends heavily on the amounts and due dates of your taxes and insurance.
- Daily Interest Charge: The charge paid at settlement for the daily loan interest from the day of settlement to the first day of the following month.
- Homeowners Insurance: The annual fee for the insurance you must purchase to protect your property from a loss. This may include flood, fire, and storm damage.
Please review this document carefully and talk with your Home Loan Consultant if you have questions. We’re here to help!
Keep in mind that the Good Faith Estimate is only an estimate and the actual costs may differ. To help you better understand, the GFE defines limits on how much certain fees can change. You will receive an updated GFE during your process if your fees increase.
Truth-in-Lending Disclosure Statement
The Truth-in-Lending Disclosure Statement is a key document in the mortgage process that shows you the total cost of your home loan under your specific mortgage terms. This disclosure provides you with the opportunity to ask questions and understand how much you will pay for your home loan over its entire term. The Truth-in-Lending Disclosure Statement provides you with the amount being financed, the annual percentage rate (APR), the finance charge, and your payment schedule.
- Amount Financed: The Amount Financed is the total amount applied for less the prepaid finance charges. The APR is based on your Amount Financed.
- The Annual Percentage Rate (APR): The APR is NOT the interest rate for which you applied. The APR takes into account various loan charges and is calculated by spreading these charges over the life of the loan, which results in a rate higher than the interest rate applied for.
- Finance Charge: The Finance Charge reflects the total dollar amount your home loan will cost you over the life of the loan, assuming you make all of your payments for the duration of the full term rather than pre-paying your loan. It is the total amount of interest, prepaid finance charges, and mortgage insurance premiums (if applicable) which you will be expected to pay over the life of your loan.
- Total of Payments: This figure represents the total of all payments made toward principal, interest, and mortgage insurance (if applicable) over the life of your loan. It is the Amount Financed plus your Finance Charge.
- Interest Rate and Payment Summary: This is a table that provides you with information about interest rates and monthly payments. It discloses your monthly principal and interest payment, estimated tax and insurance payment if escrowed, and mortgage insurance payment if applicable to provide you with your total estimated monthly payment.
Other Important Disclosures
There are several other documents that you will receive with your Initial Loan Disclosures. You will receive a notice of your right to a copy of your appraisal, a notice about your credit report, a servicing disclosure, identity disclosure, authorizations to release information and tax documentation as well as various other disclosures including some that may be specific to the state in which your property is located.
BCU offers you the convenience of receiving your Initial Loan Disclosures electronically for your review. If you prefer us to put them in the mail, we can do that too. It’s your choice. Your disclosures contain a lot of valuable information about your loan and we encourage you to read them carefully. There is no need for you to sign and return all of your disclosures. However, once you decide to begin your loan process, BCU will need you to sign and return to us the Certification and Authorization to Release Information, the 4506T, and the Patriot Act Form (also referred to as the Customer Identification Program or CIP Customer Notice).
Did you know that your Initial Loan Disclosures may be reviewed electronically immediately after completing your loan application? This gives you more time to consider your options to select the loan that is best for you!
Your loan may require updated disclosures if the terms change. You may also review all updated disclosures electronically to provide you timely updates and expedite your loan process.