What are the Mortgage Documents that you will be Signing?
The better educated you are about the process of buying a home, the less intimidating the home buying experience will be. That is why it is important to learn about the Mortgage Documents you will sign when you get a loan to buy your new home.
As a Bellingham Real Estate agent, I often find myself explaining to buyers the papers they will sign when buying a home.
There are basically four documents that will play a major role in the purchase of your home. Learning about them before you sign anything will get you a bit more comfortable when borrowing money for your new home.
At the end of 2015, The Consumer Finance Protection Bureau (CFPB for short) changed how some of the mortgage documents look in a real estate transaction as well as some timelines regarding this paperwork. This change is now known as TRID. TRID has had a massive impact on the real estate industry. Everyone from mortgage companies to real estate agents, attorneys, even buyers and sellers.
TRID makes it easier for consumers to understand the costs and fees that they’ll see at closing. The documents you now get from your lender at application and closing are like comparing apples to apples, before TRID it was more complex and more like comparing apples to oranges.
The 4 Important Documents You Will Sign For Your Mortgage
The Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) were put in place by congress to protect consumers from hidden fees and other possible abuses from lenders, real estate agents, and title companies. TRID makes sure all of the various fee disclosures and mortgage rate documents are in two standard forms, the Loan Estimate, and the Closing Disclosure.
These loan documents have been simplified somewhat so consumers have an easier time understanding the terms of the loan. You should review these forms very carefully when you receive them to check and see what you are paying for, how much you are paying and is this what you were told by your lender when you applied for your loan.
1. Loan Estimate
The Loan Estimate is a document that spells out the details of your mortgage. It includes your proposed payments and an itemized list of your closing costs. You should get the Loan Estimate within three days from the time you apply for a loan. Review the Loan Estimate carefully to make sure you understand exactly what the loan will entail and that you are comfortable with all of the terms.
Shopping for the lowest mortgage interest rate is not the only thing you need to be looking at. There are other costs that factor into what you are paying for. For example, some lenders will give you a lower interest rate if you buy down the rate with “points”. Lenders often have different fees and closing costs, some Credit Unions will have very low fees but may have higher rates. Check all the numbers to make sure you are getting the best deal.
This is how some borrowers end up paying too much for their mortgage. Instead of shopping for the lowest rate, home buyers should be looking at the entire package and all the costs of each program.
2. Closing Disclosure
The Closing Disclosure will now look almost identical to the Loan Estimate. It also has information on the loan terms, as well as a detailed list of who is being for what – buyer, seller, and third parties. This document will have all the costs (this will include sales price, various closing costs, and any prepaid items, and pro-rated items like taxes) related to the sale and who is paying for those costs. You should receive the Closing Disclosure three days prior to the closing of the sale.
3. The Promissory Note
This is the actual contract between borrower and lender. The buyer/borrower promises to pay back the loan. The Promissory Note will spell out the terms of the loan, interest rate, length of the loan, payment intervals, if you will incur an early payment penalty or not and all of the other information that makes up the conditions of the loan. The note also says that your home will be used as collateral on the loan. It also will say what happens if you are unable to meet the terms of the loan. The note says your lender can take back the house as settlement for what is owed.
4. The Security Instrument
The loan will also require you to sign either a mortgage or a deed of trust. These documents also pledge the home as security for the loan. This document will also state the way the home will be used,
- Owner-occupied means just that, the owner needs to live in the house as their primary residence for at least a year. After a year, you can rent it out.
- Second home, then it can’t be a rental and you must have another home as your primary residence.
- Non-owner occupied classification will allow you to rent out the house. (Interest rates are usually higher on non-owner-occupied homes.)
Problems with TRID
One of the biggest issues with TRID is adding time to the real estate transaction. The standard time period for a transaction has been increased from30 to 45 days. Some lenders say they can still close a transaction in 30 days with tight timelines, like inspection within a day or 2 of signing papers and appraisal soon after.
Although TRID that has been said to cause some problems the majority of buyers find it helpful as it clearly lays out their costs and expenses.
Get Educated For Home Buying Confidence
The home buying process can be a little intimidating, so make sure you know as much as you can going into the process, learn about the loan process before you make a purchase. A home is often the largest you will ever make. Educating yourself gives you more confidence and assurance you are making good decisions.
Working With Your Realtor And Lender
Choose and use your real estate agent wisely. They can answer any questions you may have and if they don’t have the answers themselves they know where to find them. Your agent will not only show you homes that are for sale but have knowledge about the market conditions, and what constitutes a good deal or an overpriced home. They can explain the basic process of buying a home and getting a loan. Your lender will elaborate on the loan process and will help you find the best deal on a loan.
Taking out a mortgage is a big deal. It involves a large sum of money and a complex process that can be a bit perplexing to the average fist time home buyer. This is where a great real estate and can help you make sure you are making the best and most educated decisions for yourself and your family’s future.
To find out what documents you will need to gather to show your lender to get a mortgage click here.