Shopping for a Mortgage
You Have Rights as a Borrower
Mortgage Regulations are Intended to Protect Consumers
Use the mortgage loan calculator to compare mortgage lenders with only one application. LendingTree.
Whether you submit a completed application or a loan representative prepares your application for a loan, the lender is legally required under RESPA to give you a copy of the Real Estate Settlement Protection Act booklet titled Shopping for a Mortgage. If the lender does not give it to you in person on the day of your loan application, it must put it in the mail to you no later than three business days after your application is filed. Failure to do so is a serious violation of mortgage lending regulations and should be reported to your lender's regulatory agency.
When you file your application for a loan, the lender must also, under the terms of RESPA, provide you with a Loan Estimate of Settlement Service Charges you will likely incur as a cost of the loan. If he/she does not give it to you, she has three business days in which to put it in the mail. See my article about closing costs for a full item-by-item discussion of settlement services or "closing costs" as they are sometimes called. On the form entitled "Closing Cost Details" you will see settlement services and charges you will encounter.
Lenders are required to give you a "Loan Estimate" based upon his experience in the locality in which the property is located, for each settlement charge that you will pay, except for paid-in-advance hazard insurance, and if required, flood insurance premiums.
As a home buyer, you should determine the cost of homeowners insurance prior to signing a contract for purchase. In many areas the cost of homeowners insurance is significant and may affect the affordability of the house for you.
The estimate may be stated as either an exact dollar amount or a dollar range for each charge. (I.e. $400 -$500.) When your lender designates the use of a particular vendor, such as an appraiser, the lender must make its Loan Estimate based upon the lender's knowledge of the amounts charged by that appraiser.
The form used for this Loan Estimate must be concise and clear, and the estimates must bear a reasonable relationship to the costs you will likely incur. This information is important for you to know as you evaluate the different mortgage programs being offered to you.
You will see something called reserve accounts on your Loan Estimate. These refer to money that will be put into an escrow account to pay for such annual expenses as property tax and homeowners insurance.
The calculation for taxes will depend on when property taxes must be paid in your area. Ask your lender about their policies regarding reserve accounts, for what items the lender requires reserves and for what period of time.
You may want to ask the lender to run through a hypothetical calculation for you based on the date you will most likely close on the house. Other assumptions may be necessary. For example, the assessed value of the property for determining property taxes.
Typically the Realtors listing for a house will contain taxes paid by the sellers in the past year.
- Insurance Premiums
The lender can probably be more specific on hazard and flood insurance premiums, particularly for the coverage that a lender requires.
Once you have obtained these estimates from the lender be aware that they are only estimates. The final costs may not be the same. Estimates are subject to changing market conditions, and fees may change. Changes in the date of settlement may result in changes in escrow and pro ration requirements. In certain cases, it may not be possible for the lender to anticipate exactly the pricing policies of settlement firms. Remember, depending on custom in your locale, you or the sellers have the right to choose the settlement company (title or escrow agents, not the lender.)
Lender Designation of Settlement Service Providers
Some lenders follow the practice of designating specific settlement service providers to be used for legal services, title examination services, title insurance, or the conduct of settlement. Where this occurs the lender, under TILA RESPA, is required to provide you as part of the Loan Estimate a statement in which the lender sets forth:
The name, address and telephone number of each provider he has designated. This must include a statement of the specific services each designated firm is to provide for you, as well as an estimate of the amount the lender anticipates you will have to pay for the service, based on the lender's experience as to what the designated provider usually charges. If the services or charges are not clear to you, ask further questions.
The lender must also state whether each designated firm has a business relationship with the lender. While designated firms often provide the services needed, a conflict of interest may exist. Take for example the situation where the provider must choose between your interests and those of the lender. Where legal services are involved, it is wise to employ your own attorney to insure that your interests are properly protected.