4 Mortgage Documents You Must Be Ready For
Buying a house is not just a transaction between the seller and the buyer; multitudes of outside parties are also hitched to the deal: real estate agents, inspectors, attorneys, loan companies and even the federal government. Orchestrating a transaction that involves so many parties requires a mountain of paperwork, so it’s important for you, as a buyer, to know which mortgage documents are closest to your interests.
Here are the four mortgage documents you must read carefully before signing your way into your new home:
- Loan estimate
As of 2015, lenders are required to provide you with a loan estimate within three days of your applying for a loan. The loan estimate explains loan terms, projected payments over the duration of your mortgage, and line item closing costs.
- Closing disclosure
As of 2015, lenders are required to provide you with a closing disclosure three days before you close your mortgage deal. The closing disclosure will be almost an exact replica of your loan estimate, with the addition of a breakdown of costs you are paying for vs. costs the seller is paying for. You can consider the closuring disclosure as a friendly reminder of exactly what you are signing up for, with a mandatory three day waiting period for contemplation.
- Promissory note
If you choose to go ahead with the mortgage, after contemplating the closing disclosure for three days, you will receive a promissory note. The promissory note is your loan contract, which specifies loan terms, rate, interval of payments, and changes in payment that may occur throughout the life of your mortgage. The promissory note will also specify whether or not you will be penalized for paying off your mortgage early.
Most importantly, the promissory note grants your lender the right to claim your property if you fail to meet the terms of your mortgage.
- Security instrument (aka. mortgage, deed of trust)
The security instrument is referred to by the promissory note and contains the details of your claim to the property vs. your lender’s claim to the property. Depending on your plans for the property, your property may be classified as owner-occupied, second home, or non-owner-occupied.
In order for a property to be owner-occupied, you must move into the property within 60 days of signing your mortgage and remain there for one year. To be a second home, you must spend a significant portion of your time away from the home, without renting it during your absence. To be non-owner-occupied, the property must be rented to another party.
These classifications usually affect the rate of your loan, with owner-occupied being the lowest rate and non-owner occupied the highest.
Don’t be intimidated by the landslide of paperwork that backs your mortgage. Much of the paperwork has actually been designed, in conformance with the Truth In Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), to protect you from closing cost abuses or misinformation. Focus on the mortgage documents that detail your rights, and you will get through your mortgage process safe and sound.