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Mortgage Settlement
Estimates of Closing Costs and Fees

 

At various steps in your loan application process, you are entitled to receive estimates of the costs and fees associated with obtaining a mortgage and completing settlement.

The "Good Faith Estimate"

With such a long list of potential charges at closing, it is important to know what to expect. The Real Estate Settlement Procedures Act (RESPA) requires your mortgage lender to give you a "good faith estimate" of all your closing costs within 3 business days of submitting your application for a loan, whether you are purchasing or refinancing the home. This is a good faith estimate, and the actual expenses at closing may be somewhat different. If you are purchasing the home, you will also get an information booklet, Buying Your Home: Settlement Costs and Helpful Information.

Truth In Lending Information

For home purchases, the lender is required, under the Truth in Lending Act, to provide a statement containing "good faith estimates" of the costs of the loan within 3 business days of submitting your application. This estimate will include your total finance charge and the annual percentage rate (APR). The APR expresses the cost of your loan as an annual rate. This rate is likely to be higher than the stated contract interest rate on your mortgage because it takes into account discount points, mortgage insurance, and certain other fees that add to the cost of your loan. When refinancing your mortgage, you will receive the truth in lending disclosures before you settle.

The "HUD-1" Statement

When you purchase a home or refinance your mortgage, the Real Estate Settlement Procedures Act also requires the lender to give you a copy of the HUD-1 or HUD-1A Settlement Statement one day before you go to settlement, if you request it. This final statement of settlement costs will show all the fees and charges you will be expected to pay at closing. For a sample HUD-1, see: Blank HUD-1 Settlement Statement. For descriptions of various sections, see: HUD-1 Section J (lines 100-303) and HUD-1 Section L (lines 700-1400).

Fees Paid Outside of Settlement

Some fees may be listed on the HUD-1 and marked as "Paid Outside of Closing" (or "POC"). You will pay some of these fees, such as for credit reports and appraisals, before settlement. Other fees, such as those to a mortgage broker, you will pay at settlement.

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