You want to buy a new home. You know the process involves signing a bunch of documents. But do you really know what paperwork you’ll be signing and why?

 

In October 2015, some new laws – the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) – went into effect which require you to sign a couple new documents when buying a home. These acts protect home buyers, who are financing their homes, from fee abuses, such as extra fees for closing costs and referral fees (when lenders, real estate agents and title companies give each other referral fees for your business).

 

TILA and RESPA are enforced by the Consumer Financial Protection Bureau (CFPB). To help consumers understand their mortgages better, the CFPB combined all previously required mortgage rate and fee disclosures into two simple forms – the Loan Estimate and the Closing Disclosure. This initiative is called the TILA-RESPA Integrated Disclosure Rule (TRID).

 

During the mortgage process, here are the 4 most important documents you’ll sign:

1. Loan Estimate. One of the TRID forms, it replaced the Good Faith Estimate and Truth in Lending disclosures that home buyers used to get. The Loan Estimate is a three-page form you receive within three days of applying for a mortgage. It details the terms of your loan, your projected payments (including taxes and insurance) over the life of your mortgage and line item closing costs.
2. Closing Disclosure. Another TRID form, the Closing Disclosure must be provided to you within three days of closing on your mortgage. This form looks almost exactly like the Loan Estimate, except it breaks down the costs paid by the buyer versus the seller versus third parties. Once you agree to move forward with the closing, you’ll have to sign a full set of loan documents, which includes the following important forms.
3. Promissory Note. The Promissory Note is your loan contract. By signing this note, you are stating that you promise to repay the lender a specified amount, plus interest, at a specified rate for a specific length of time (such as 15 or 30 years) in order to have ownership of the home. The Promissory Note legally protects the lender in the event you refuse to repay what you owe on your mortgage. In the note, you agree that your home is security for the loan.
4. Mortgage or Deed of Trust. Depending upon the state in which the home is located, you’ll sign either a Mortgage or a Deed of Trust. This form pledges the property as security for the note. The Mortgage or Deed of Trust also contains the occupancy provision you’ll need to comply with, depending on your loan:

Owner-occupied. You must move into the home within 60 days of the closing. Also you must live in the home as your primary residence for at least one year before you can use it as a rental or second home.

Second home. The home can only be used as a second home. Also you cannot rent the home.

Non-owner-occupied. Since you’ll pay a higher rate on this type of loan, you can use the home as an owner-occupied property or a second home whenever you want.

 

Before you sign any mortgage documents, make sure you thoroughly read them. Also make sure you understand any specific timeframe rules you must follow since they could affect how long it’ll take to complete the mortgage process.

 

Hopefully, with this information, you now feel more confident when it comes to completing the paperwork required during the mortgage process.

If you’re looking to obtain a mortgage on a new property or you wish to refinance your current property, contact the mortgage specialists at Grandview Lending. They can help you find the right mortgage for your unique situation. And if you have any questions about the mortgage documents you must sign, please let us know. We’ll be happy to answer your questions.

 

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