How to Understand Your Mortgage Disclosures

The volume of paperwork that goes into a new mortgage loan, even a refinance of an existing loan, can seem overwhelming. The federal government requires a lender to provide a number of important disclosures to any new loan applicant within 72 hours of signing a loan application, as well as during and after the loan application and funding process. Because the government uses mandatory disclosures as a method of protecting consumers from a process they may not understand, the sheaf of paperwork a loan officer slides across the desk to the borrower can be a bit of a surprise.

Understanding the primary purpose and function of these documents will make your mortgage process much less intimidating. With that in mind, here are some of the documents you are likely to see.

Before your loan closes

After submitting your loan application, your loan officer or broker has three days to give you a number of documents, collectively referred to as the upfront disclosures. Here is a quick description of some of these documents.

The Truth-In-Lending Disclosure Statement: Sometimes referred to as the TILA disclosure, this is one of the first documents you’re likely to see. It explains:

Annual percentage rate (APR)
Total amount financed
Total monthly payment
Total of all payments
Total finance charges
Late payment charges
Prepayment penalties
Insurance requirements
Assumability restrictions

The second document you’re likely to see within the first 72 hours is the Settlement Costs and Information booklet from the U.S. Department of Housing and Urban Development. This document explains the types of costs you can expect to incur for taking out this loan.

The Good Faith Estimate: This breakdown of total settlement costs is a critically important document. The government now requires lenders to come much closer to this estimate than was required in the past. This document is now a good indication of what the loan will cost to originate. It includes an estimate of the following fees:

Loan origination fees
Credit report fees
Appraisal fees
Loan points
Prorated interest
Homeowners and mortgage insurance premiums
Title search fees and title insurance premiums
Document preparation fees

If the lender plans to sell off the servicing rights to your loan (the ability to collect payments from you) you may also see the Transfer of Servicing Disclosure Statement, which informs you about your lender’s possible right to transfer the servicing of your loan to another lender.

Initial Escrow Account Disclosure: Finally, you’ll see a document detailing:

Escrow account requirements
Cash requirements at closing

Closing and beyond

After your loan process is complete, your loan officer will give you another set of disclosure documents to review and sign. Compare these new documents with the initial disclosure documents you already received. Notify your lender of any differences between the two sets of documents before you sign them.

Your lender will give you a package of loan disclosure documents for your files. These will include many of the same documents signed earlier at your loan closing. Compare those documents to what you already signed at closing and ask your lender about any discrepancies. Documents in this package will include:

Final Truth-in-Lending Disclosure Statement: This discloses:

Annual percentage rate (APR)
Total amount financed
Total finance charge
Total of all payments
The demand feature
Late payment fee information
Prepayment penalties

Final Good Faith Estimate of Settlement Costs: This discloses:

Final settlement charges and fees
Final closing expenses

You will only see copies of the initial disclosure of these two documents at closing if nothing has changed on your loan during the processing. If the costs do change during the process, the lender may be required to disclose the new costs on one or both of these documents again before you reach the closing table.

Finally, there are two additional disclosures you’re likely to see for most loans you might choose. They are:

Private Mortgage Insurance Disclosure: Explains private mortgage insurance benefits.
Appraisal Notice: Informs you about your right to have a copy of the appraisal report.

Review carefully

The disclosures described here are part of most loan products you might purchase from a lender, but you may see other disclosures due to local or state requirements or based on the type of loan product you need.

Lenders hope to earn your commitment to the lending process as quickly as possible. One way they do that is to get the upfront disclosures delivered, signed and returned quickly. This is in the borrower’s best interest, and it keeps the lending process moving forward and ultimately results in the consumer getting the money needed to purchase a home or refinance an older mortgage.

The important thing is to not feel rushed when reviewing these documents. They are provided for your information. If you have a question about something, by all means ask it.

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Rick Grant has been covering financial services for the trade press for more than 15 years. He specializes in home finance and technology.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.