Whether you are in the process of buying your first home or your tenth home the amount of mortgage paperwork necessary can be quite confusing and pretty intimidating. When you apply for your mortgage you will most likely have to sign preliminary paperwork and then at closing you will need to sign a much larger portion of paperwork. Your closing paperwork will have multiple copies of most everything that you have sign. So what is what with mortgage paperwork? What should you pay close attention to and what do each of the forms really mean in plain English?
Mortgage paperwork may seem tedious and boring, and in many ways may seem a formality more than anything else, however it is in your interest to ask questions about things you don't understand and move forward with the confidence that all the terms and conditions of your important transaction have been disclosed properly to you.
You should also review the Truth-in-Lending (or TIL) disclosure. This piece of paperwork should be issued to you each time you receive a Good Faith Estimate. It will contain the annual percentage rate (or APR) which represents the true cost of the loan and should be used if you are attempting to shop between multiple mortgage brokers, banks, and/or lenders. The TIL also details whether or not you are receiving a fixed rate or adjustable rate mortgage, a fully amortizing, negative amortizing, balloon, or interest only mortgage, whether or not you have mortgage insurance, whether or not you have a prepayment penalty, and whether or not your mortgage can be assumed by the buyer when you sell your property.
There is a lot of mortgage paperwork but you have to remember to pay attention to what you are signing. Many documents provide disclosures that help keep you informed of the details of your mortgage transaction.
If your are getting a refinance, another preliminary document that needs to be read and signed is the Borrowers Authorization form. This form basically grants permission for the bank your using to secure the refinance to speak to your original lender on your behalf. The reason this is done is so that the escrow company will know where and how to payoff the existing loan balance.
The first step in the official loan approval process; the 1003 form is used to record important information about the potential borrower necessary to the underwriting process.
Many borrowers find the 1003 application somewhat ovrwhelming so your Loan Officer will normally assist you in filling it out. However, it is important that you give accurate information to your Loan Officer, in most loan programs the information on the 1003 will need to be supported by documentation.
The main piece of paper work to pay attention to is the Good Faith Estimate or GFE as it is often referred to. The GFE will list all the fees charged to originate, underwrite, process and close the loan. Your mortgage broker should provide you with this piece of paperwork within 3 days of mortgage application. You can take the initial GFE with you to the closing and compare it to the final GFE. The final fee's will vary from the initial estimated fee's but they should be relatively close and within $200-$300 of each other.
Many lenders will issue a commitment letter prior to closing. This document will list the terms in which your loan has been approved, and what conditions will be necessary to fulfill in order to close your transaction. Be sure your loan is showing as "locked" at the rate and terms you had agreed upon at application.