I remember when I was buying my first home and the mortgage loan officer walked into the office with a stack of papers about five inches high. My initial thought was; do I have to sign each one of those documents? Back then (yes, I realize I might be giving my age away here) the answer was yes. I thought I was signing the rights to my life away. In truth, I didn’t know what half of those documents were. The loan officer gave me a quick overview of each before I signed each one, but after I left the office, I couldn’t tell you what each was if my life depended on it.
Just as important as it is to know which wall in your home is a load bearing wall before you start a remodel project, it is just as important to know about these four documents.
*In October 2015, some new laws – the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) in short, TILA-RESPA Integrated Disclosure (TRID) rule – went into effect which require you to sign a couple new documents when buying a home. These acts protect home buyers, who are financing their homes, from fee abuses, such as extra fees for closing costs and referral fees (when lenders, real estate agents and title companies give each other referral fees for your business). The two new forms were designed to be clear for homebuyers to understand all of the fees associated with getting their loan.
You will not sit down with your mortgage loan office with stacks to the ceilings of documents to sign anymore, but there are still documents that hold their weight.
One of the TRID forms replaces the “Good Faith Estimate” and “Truth in Lending” disclosures that home buyers used to get. The Loan Estimate is a three-page form you receive within three days of applying for a mortgage. You get this form from your lender. It details the terms of your loan, your projected payments (including taxes and insurance) over the life of your mortgage and line item closing costs.
Another TRID form, the Closing Disclosure must be provided to you within three days of closing on your mortgage. This form looks almost exactly like the Loan Estimate, except it breaks down the costs paid by the buyer versus the seller versus third parties. If you agree to proceed with the loan you will sign a full set of loan documents.
The Promissory Note
Also known as “the note,” is the contract with the lender. By signing this note, you are stating that you promise to repay the lender a specified amount, plus interest, at a specified rate for a specific length of time (such as 15 or 30 years) in order to have ownership of the home. It also specifies that your home is security for the loan in case of default.
The Security Instrument (the mortgage, or the deed of trust)
Also known as “the deed of trust,” this form functions as another form of documentation pledging your home as security. This document will detail whether or not you’re allowed to use the home as a rental property or second home and at what point. This document essentially acts as the security behind your mortgage, so when you sign it, you’re officially a homeowner.
As always, remember to work closely with a mortgage professional to ensure you understand the documents before you sign.
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