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RESPA

The US Real Estate Settlement Procedures Act (RESPA) dictates that lenders provide U.S. mortgage applicants with "Good Faith Estimate" (GFE) and "Truth in Lending" (TIL) documents within 3 days of application for a mortgage.

In addition, certain "high cost" real estate loans require a separate RESPA Section 32 notification at least three days before loan closing.

These documents, along with a copy of the Wall Street Journal, are key to understanding the true cost of your mortgage.

(GFE) GOOD FAITH ESTIMATE
The "Good Faith Estimate" provides a detailed estimate of all closing costs anticipated in obtaining and closing your loan.

The name of the document tells all: "Good Faith Estimate" means it is the lender's best guess.

If these charges change significantly, it is the lender's obligation to provide the borrower with a new GFE as soon as the lender becomes aware of the change.

(TIL) TRUTH IN LENDING
The "Truth in Lending" document shows the proposed "Annual Percentage Rate" (APR), a schedule of proposed monthly payments, total interest charges expressed in dollars, the total of loan proceeds being used on your behalf, and a total of payments.

Two major pieces of significant information appear on the TIL (Truth in Lending) document, the APR, and the schedule of payments.

(APR) ANNUAL PERCENTAGE RATE
The APR is a more accurate reflector of actual mortgage costs, especially if the loan remains intact through its entire term, because it reflects certain loan-related closing costs as well as interest charges. The note rate merely reflects the annual interest rate.

SCHEDULE OF PAYMENTS
The "Schedule of Payments" documents when payments will be due, and the amount of each payment.

This information is particularly valuable on an adjustable rate mortgage, or on any mortgage that ends with a balloon payment.

Each adjustment shown on the schedule of payments demonstrates the maximum increase in payment possible under the terms of the mortgage.

While it is doubtful that the "note rate" will adjust the maximum amount each adjustment period (see warning), the buyer ought to take a sober look at the schedule of payments and consider the possible consequences of possible higher payments.

Naturally, the Schedule of Payments does not include the effects of late payment charges and pre-payment penalties, but the TIL will disclose them, if they exist.

HIGH COST LOAN - RESPA SECTION 32
Finally, the RESPA Section 32 notice must be provided 3-5 days before closing of mortgages whose APR is 10% greater than the US Treasury Security Rate (TSR), or whose loan related closing costs, origination, and discount fees exceed 8% of the mortgage value.

The Section 32 notice reminds the borrower that timely payment is required to keep the mortgage current, and that failure to make payments as agreed can result in loss of the property securing the mortgage.

Note: The only time you will see this form, is if you have been given a "higher-than-prevailing interest rate."