Mortgage 101: The Good Faith Estimate and Truth-In-Lending Disclosure
- posted 5.9.2012
- Rosemarie Pirio
- Home Loans
So you're buying a home. You got preapproved, found the home of your dreams, made an offer, the offer was accepted (after some negotiations), purchased homeowner's insurance and finally decided on the home loan that suits your financial goals best.
As soon as you have completed the home loan application with your loan officer and submitted it for approval, you should expect to receive the following important documents, to which you should pay extra special attention:
- A Good Faith Estimate (GFE)
- Truth-In-Lending Disclosure
- Mortgage Servicing Disclosure
- Other Disclosures
Good Faith Estimate
A Good Faith Estimate(GFE), which you will receive within three days of completing your loan application, will explain the basics of your loan including your closing costs and loan terms, if you are approved for the loan. This document will help you fully understand your mortgage transaction; it will break down all of the potential costs associated. Although this is just an estimate, by law it must be a solid estimate, and reasonably similar to the actual costs incurred at closing. The loan officer is bound to the closing costs and terms listed on the GFE, subject to certain conditions.
The Truth-In-Lending(TIL) Disclosure, also sent no later than three days after you complete your loan application, will include:
- the loan's annual percentage rate (APR)
- your finance charge
- the amount financed or how much credit you are being provided
- the total of payments
Don't be alarmed if the APR is higher than the interest rate; this is normal as the APR also includes any points or other fees you may be paying.
The finance charge is the estimated sum of: interest payments made during the life of the loan, the amount of interest paid at closing, the origination fee, and any other fees you paid to the lender.
The total of payments is the estimated total amount you will have paid on the loan, assuming you make the regularly scheduled mortgage payments, including the principal, interest, pre-paid finance charges and mortgage insurance (if applicable).
Both the GFE and the TIL Are Just Estimates
Fees can change, and so can interest rates, so don't be surprised if these changes occur when you decide to move forward. However, these documents are great to use when rate shopping. While one lender may offer a lower interest rate, another may be able to offer a comparable interest rate, plus lower closing costs (now disclosed in the GFE and TIL).
Mortgage Servicing Disclosure
This is a statement notifying you, the borrower, that the lender may or may not sell or transfer the servicing rights of the loan. In the case that the servicing rights will be sold, you may be dealing with a different lender when making your monthly mortgage payments.
In addition to these important documents, you will also be receiving a number of different disclosures throughout the loan process including the appraisal disclosure, explaining that you have the right to obtain a copy of the appraisal, a disclosure about your credit report, and a disclosure you must sign confirming that you will be occupying the home.
Please feel free to share this blog with friends and family going through the home buying process. Knowledge is power! And if there is anything you would like to add, please comment below!