Mortgage Application Legal Requirements
Under federal law, your lender is required to furnish you with several types of documents and information in conjunction with your application for a mortgage loan. This information includes the following:
Annual Percentage rate (APR):
This figure factors interest plus certain closing costs, any points and other finance charges over the term of the loan. The APR must be disclosed to you according to federal Truth-in-Lending laws within three business days of when you apply for a loan, or prior to or at closing for a refinance.
Disclosure about ARMs
You must also get a written summary of the important terms and costs of the loan, the past performance of the index to which the interest rate will be tied, and a copy of the booklet "Consumer Handbook on Adjustable-Rate Mortgages." You will receive this information when you receive an application form for an ARM or pay a nonrefundable fee-whichever comes first.
Good-Faith Estimate
Within three days after you have submitted your application for a home loan, the lender must give you an itemized estimate of the costs to close the loan, called a "good-faith estimate." It is an idea of how much money you will need to pay at the closing table along with the seller's costs. Costs can and will vary from the actual amounts indicated, so be sure to take this for what it is – an estimate.
Guide to Settlement Costs
The lender must also give you a copy of the government publication "Settlement Costs: A HUD Guide", which describes the settlement process and nature of its charges, provides information about your rights, and includes an item-by-item explanation of settlement services and costs. The lender has three business days after your written application is taken to give this guide to you.
Authorization Forms
You may be asked to sign several authorization forms that will allow your lender to verify the information on your application. These include the authorization of credit investigation, verification of employment, past rental or mortgage payment history, and bank deposits.
Consumer Credit Protection
When compiling a credit profile of you, your lender must certify that the credit report will only be used for the purpose of qualifying you for a mortgage loan.
As part of the credit evaluation process, your lender cannot seek any subjective information from your neighbors or co-workers concerning your character, reputation, or other personal aspects unless you receive notice. These limitations are set by the Fair Credit Reporting Act.
Under the Equal Credit Opportunity Act, your lender cannot discriminate based on race, color, national origin, sex, marital status, age, religion, and the fact that all or part of your income comes from a public assistance program, and your exercise of any rights under the Consumer Credit Protection Act. Your lender also cannot ask questions about your future parenting plans, although the lender may ask about the current number of children you have and their ages.
Alternative Documentation Loans
An alternative-doc (or alternative documentation) loan uses methods such as W-2 forms, computerized pay stubs, bank statements, and canceled checks to verify information.
Before your loan interview, ask whether your lender offers alternative documentation and find out if you are eligible. In most cases, alternative documentation can be used for salaried individuals who receive a computerized (as opposed to handwritten) paycheck. Self-employed individuals or those who earn commissions will most likely not be able to use alternative documentation for employment verification.
