The Loan Estimate, discussed in last week’s blog, also includes certain disclosures that will enable you to see the total cost of your mortgage under the terms of your particular mortgage loan. The disclosure documents are required by law to inform you of the complete cost of your loan and allows you the opportunity to ask questions and understand how much you will pay for the mortgage loan you will get.
There are three disclosures that reflect the most significant characteristics of your mortgage loan:
- Annual percentage rate (APR)
- Payment amount
- Total interest percentage (TIP)
- The APR is not the interest rate for which you applied. This percentage rate takes into account the various loan charges, including loan discounts, origination fees, prepaid interest and other credit costs. The APR is important because it gives the true cost of borrowing since all of the finance charges associated with the mortgage loan are considered.
- The proposed payment amount shows the dollar amount of your payments and their frequency.
- The TIP is the total amount of interest that you will pay over the loan term as a percentage of your loan
The Appraisal Disclosure
The Appraisal Disclosure will inform you that you have the right to get a copy of the appraisal report that was obtained in conjunction with your application for credit.
There are several other disclosures that will be given to you, including a disclosure about your credit report and your right to get a copy. You will also be required to sign a disclosure stating that you intend to actually occupy the property as your primary residence (live in the property the majority of the time), as opposed to using the property as a second home or as an investment.
The Closing Disclosure
Your loan officer should provide you with a copy of the Closing Disclosure at least 3 business days before you sign the mortgage loan documents at your closing. This document discloses the actual dollar amounts you will pay for the various fees and services associated with the closing of your mortgage loan. Your closing costs can typically range from 3 percent to 7 percent of the mortgage loan amount, so it’s important that you are aware of these costs and ask questions about them.
The Closing Disclosure contains the final terms of your loan, as well as the final loan charges that you will pay at closing and date of closing. In addition to the disclosures contained in the Loan Estimate, the Closing Disclosure provides information regarding certain features of your loan, the amount financed, the finance charge, and the total of payments.
The amount financed is the loan amount available after paying your upfront finance charge. The finance charge is the dollar amount the loan will cost you and the total payments is the total amount you will have paid after you make all payments of principal, interest, mortgage insurance, and loan costs, as scheduled.
Disclosures are documents in which lenders are obligated to be completely transparent about all the terms of the mortgage agreement that they are offering you. These statements are meant to give you the information you need to make an informed decision.