When you receive the final loan documents, it can be overwhelming. They are usually over 100 pages. It is tempting to skim over them all and not read any carefully. But that is a mistake. This article will help you zero in on the most important documents and know which ones are simply standard disclosures.
The Loan Note
This is the single most important document. This outlines the terms of your loan; that is the rate and terms of the loan. I recommend you read it carefully and keep it for future reference. If you get a HELOC after you close this loan, the lender will need this to determine the terms of the loan in first position.
Prior to the laws enacted in 2010, it was common for a loan officer to say the rate is fixed; but give the borrower an Adjustable Rate Mortgage. Those who read the Note figured out the ruse. That kind of bait-and-switch practice rarely happens today; but it is still important to know the terms of your loan.
The Settlement Statement
The settlement agent (escrow officer or attorney) will include an estimated settlement statement with the loan docs. It is important to read each line and question charges you don’t understand.
Before 2010, many lenders and settlement agents added junk fees at the end that were not disclosed upfront. The fees sounded legitimate (e.g. Admin Fee); but did not represent a true service, so I categorized them as “Junk Fees” in my book.
Due to tight regulations, few lenders charge junk fees anymore. However, escrow companies are less regulated. I find junk fees in the Settlement Agent section often. My favorite junk fee is the “e-doc with fee”. When I questioned an escrow officer about that fee, she told me it is a fee to open the email containing the loan documents. Really? Opening an email isn’t part of the service covered by your base fee?
The Deed of Trust
This is the document that will be recorded as a lien against your property. It essentially says that if you default on the payments, they will take the property. That is a big “duh!”. You may or may not decide to read this document thoroughly; but you may want to at least skim it. You can keep it handy for future reference in case you fall behind on your payments, but it is also recorded so you can access it through public record.
The Final Loan Application
The loan application (called the 1003) should be accurate at the end, because the loan officer, underwriter and processor have had the opportunity to make changes based on documentation they received. However, if you see any mistakes, point them out. The lender will usually allow you to cross out the inaccurate information, add the correct information, and initial it.
The Closing Disclosure
The Government meant well when they designed this form. However, the Settlement Statement is usually more accurate regarding costs. If the loan is adjustable, has a pre-payment penalty or taxes and insurance are included in your monthly payment, the Closing Disclosure will disclose all of that, but the Settlement Statement does not contain that information.
Other Disclosures
Anti-discrimination Laws
I playfully refer to these as the “yada-yada” disclosures. I wish lenders would at least consolidate many of these into one document that requires only one signature. They are separate pages now which makes the signing process long and arduous; and lowers the possibility that anyone will read any of them. If their intention is to protect consumers, shouldn’t they be easier to read and understand?
Some of the disclosures describe laws against discrimination that have been in effect for decades. I have a question for the people who decided these needed to be included in the final loan documents. “At this point in the process, it is abundantly clear that there is no discrimination taking place because they are signing final loan documents! How does it help to tell them it is illegal to discriminate at this point?” Disclosing that fact upfront makes sense; but does it make sense at the end?
Notice of Right to Cancel
If you are refinancing an owner-occupied property, you have 3-business days from the day you sign loan documents to change your mind and cancel the refinance.
Anti-fraud Documents
There will be several documents that are designed to prevent fraud, like the Occupancy Affidavit. Feel free to read them; but if you aren’t committing fraud there is no reason to worry about them.
Others
There are many other disclosures and forms, too numerous to outline in an article that hopes to be brief enough that you will read it. If you don’t understand any of them, ask the loan officer or settlement agent to explain them.
If you have any questions, contact me at CustomerCare@HollyGustlin.com or 877-728-2008.