Q: Why is there so much paperwork and is it all really necessary?
A: The paperwork you receive are disclosures and there are three types: federal disclosures, state disclosures, and lender disclosures. Federal and state disclosures are required by law to be delivered to every borrower. Lender disclosures aid in explaining specific lender requirements or provide information that the lender believes, you, the consumer, will need to know about your transaction. Generally speaking all disclosures are in the nature of consumer protection; the goal is to provide the borrower with a clear understanding of the transaction and the costs involved.
Q: Why is there emphasis placed on the timing of these documents?
A: Mortgage banking regulations place strict requirements on the delivery of documents when an application is made. The general purpose is to provide borrowers with an estimate of costs along with enough information so an informed decision can be made before committing financially to any lender and proceeding with the application process. As a result of mortgage reform, federal regulations place strict compliance on when a loan can close. So while purchase contracts may specify a closing date and rate locks have an expiration date, regulations will effect (and in some cases may decide) the closing date. For this reason it is important to work with an experienced Loan Officer directly who will assist you in managing your loan process. Additionally, agreeing to receive documents via a secure electronic delivery will assist in expediting the process.
Q: How soon do I have to return my package?
A: To provide you with the best service it is recommended that you return your package within 24 hours. It is advisable that you read your documents and ask your Loan Officer any questions that may arise. The application process is dependent upon signing and returning these documents. Timing is especially critical if your loan is a purchase transaction, has a rate lock, or you simply want to close as soon as possible.
Q: What if I don’t have all of my documents together?
A: Just send in what you have with the package. You can always send or fax additional documentation later. It helps if you let your loan processor know when the rest of the documents will be sent. Of course, the sooner we have all of the required information, the sooner we can process your loan.
Q: Who orders the appraisal?
A: Your Lender will order the appraisal. The contact information you provided will allow the appraiser to contact you directly to schedule the appointment. You will automatically receive a copy of the report when it is completed.
Q: What is a TILA/RESPA Integrated Disclosure?
A: In 2015 the Consumer Financial Protection Bureau (“CFPB”) changed the way lenders disclose details of your loan request. Previously borrowers were issued a Good Faith Estimate which outlined closing costs and a Truth-in-Lending Disclosure that provided details of the interest rate. Those two disclosures are now combined into one “integrated disclosure” or Loan Estimate (“LE”). This one document will describe the details of your loan request in a format that was deemed much more consumer friendly. The goal being that this disclosure uses plain language in an easy to read format to detail your loan request. This is a move forward toward better consumer understanding on the loan process and we encourage you to review this disclosure and call us with any questions.
Q: How do you arrive at my closing costs listed on the Loan Estimate?
A: Costs are essentially 3 categories: lender charges, legal charges, and pre-paid items (funds set aside for interest, mortgage insurance, property insurance, and property taxes). Many of the costs are standard no matter where you chose to get your loan. Costs like appraisal, credit report, and state recording fees are simply 3rd party charges and will not vary significantly; if at all. Please direct any questions you have about costs to your Loan Officer.
Q: If I see missing or incorrect information on my application, can I make changes?
A: Absolutely. Just cross out the incorrect information, and write in the correct information. Once we receive your package, your loan processor will confirm the changes with you and prepare a final application for you to sign at closing.
Q: What is Total-Interest-Paid and why is it drastically different from my mortgage loan rate?
A: The “Total Interest Percentage,” using that term and the abbreviation “TIP” is expressed as a percentage, and may best be described as “The total amount of interest that you will pay over the loan term as a percentage of your loan amount.” Your Mortgage interest rate is how your monthly payments are calculated while the TIP rate contemplates how much interest you would pay over the entire term of the loan, assuming you kept the loan for the entire term.
Q: What is Private Mortgage Insurance?
A: Private Mortgage Insurance (PMI) is required when the amount of the down payment is less than 20% of the purchase price or you have less than 20% equity in your home. Although PMI does not protect the borrower, it protects the lender in the event the borrower goes into default or foreclosure. The premium however is borne by the borrower and results in an additional monthly charge.
Q: What are escrows and do I need them?
A: Escrows are the equivalent of a forced savings account. The lender will put aside funds at the closing in an account for you. Thereafter, each month when you make your payment part of that payment will be deposited into the account. Then, for example, when a tax payment or property insurance payment is due, there will be enough money in the account to make the payment. Sometimes this is a preferred method because tax and insurance payments are budgeted on a monthly basis rather than being paid all at once when due. The option to escrow depends on the loan program, lender, or down payment.
Q: What is pre-paid interest?
A: This is simply a partial mortgage payment. Per diem interest is daily interest and you can expect to make a mortgage payment based on when in the month you will close. For example if you close on the 15th of a given month then you would have 15 days remaining in that month (assuming a 30 day month) so you would have half a mortgage payment due for that month.
Q: When is my first payment due?
A: The closing attorney/settlement agent would have instructed you when and where to make the first payment. The due date on your first payment can vary due to pre-paid interest so please refer to your closing documents or call your Loan Officer soon as possible so you avoid any delay.
Q: How long does the process take?
A: Ideally your loan process should take approximately 30 days from application to closing. However several issues can impact this timeline: if the mortgage market is busy with refinances and purchases, lenders will be at capacity and the process is simply longer by virtue of backlog. Federal regulations can also elongate the process. Again, there are timelines built into the process for consumer protection that require certain waiting periods. Changes to your loan during the process while seemingly innocuous can create delay as these changes can reset timelines and cause more work on your loan. In order to expedite the process there are several tips you can apply. Try to make as many financial decisions before you apply by discussing options with your Loan Consultant. Return disclosures promptly. This is critical as it speeds your process. Send in requested income and asset documentation promptly. This allows us to decision your loan quickly. Finally schedule your appraisal immediately and call your Loan Officers often as needed. It is their job to manage this process for you and get your loan closed but your attention plays a critical role in the process as well.