When You Compare Mortgage Quote, Pay Special Attention To These Four Documents

Disclosures


By law, mortgage companies are required to disclose certain things upon your application for a mortgage. Administered by the U.S. Department of Housing and Urban Development's Federal Housing Administration, the government has instituted several protections for consumers. One such program is called the Real Estate Settlement Procedures Act, or RESPA. Under RESPA, consumers are notified of "key service costs" in advance to ensure "fair settlement services." Consumers are also protected from illegal practices, including the payment of kickbacks and other illegal fees that would inflate the costs of these settlement services. RESPA provides consumers information to help them to choose the real estate settlement services most suited to their needs.

Good Faith Estimate (GFE)


A GFE is a breakdown of the fees and costs you may incur by taking out a mortgage loan. There are a lot of things you can ascertain by carefully examining a GFE.

Reg Z Truth-In-Lending (TIL)


The TIL breaks down five important aspects of your loan: Your interest rate, your APR, your total of payments, your estimated interest.

Annual Percentage Rate (APR)


The APR is an "effective" interest rate. It is a rate that reflects the total costs of the loan. It is NOT an indication of the actual interest rate you are paying. If you use a financial calculator to figure out your interest rate based on your loan amount, payment, and term, you will find that the rate is lower than the APR. The APR is a good indicator of how much in fees you are paying. The bigger the difference between the actual rate and the APR, the more fees you are being charged. The fees calculated in the APR are derived from those listed in the GFE.

The APR is a good tool for comparing similar loan offers. In other words, it can be used to make comparisons between fixed-rate loans from several lenders. You cannot, however, compare an adjustable-rate loan with a fixed-rate loan by looking at the APR because there are several other factors that go into calculating APR's for ARMs. If you look closely at a TIL statement for an ARM, you will notice the letter "e" next to some of the figures. This is an indication that the number contained there is an estimate of what it might be over the life of the loan. It is an estimate because there is no way to tell how the interest rate will fluctuate through the life of the loan.

CAUTION: Don't be surprised if the APR for a 15-year loan is slightly higher than a 30-year loan. This is because the points are amortized over the shorter 15-year term.

Affiliated Business Disclosure


This is a document that discloses the other businesses that have some sort of affiliated relationship with the lender. Usually, this includes a title company and an appraisal company. This does not mean that you MUST do business with these businesses. In most cases, you may select your own title and appraisal company.