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Consumer Tips

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In an effort to keep home buyers as informed as possible, the Texas Mortgage Bankers Association has developed a list of answers to frequently asked questions consumers have about closing on a mortgage.

 

Please be advised that the Texas Mortgage Bankers Association cannot and does not give legal advice. The following list of questions and answers is meant as general information only and is not intended as specific legal advice. You will want to consult an attorney for legal advice specific to your case or circumstances. (click on questions to view answers)

  • Am I entitled to a copy of the appraisal?

    • Your lender may require that you obtain an appraisal. An appraisal determines the value of your home and lets the lender know if the value is enough to secure the loan.

    • The Equal Credit Opportunity Act (ECOA) requires your lender to provide you a copy of the appraisal report used in connection with your application for a loan that is to be secured by your home (regardless of whether credit is approved or denied, or your application is withdrawn). Your lender may routinely provide a copy of the appraisal report or may do so upon your written request. Lenders who do not routinely provide copies of appraisals must give loan applicants a written notice of their right to receive a copy of the appraisal of their home not later than when informing them of a credit decision. The notice will tell you how and when you may request a copy of your appraisal.

  • What is an ESCROW account and how much do I have to pay?

    • Your lender may require that you have an ESCROW account. This is an account the lender maintains on your behalf to pay your property taxes and insurance premiums as they become due. ESCROW accounts maintained by your lender are regulated by the federal Real Estate Settlement Procedures Act (RESPA).

    • At closing, lenders are permitted to collect a pro rata portion of the estimated annual real estate taxes and property insurance payments that you will owe in the first year of your loan plus a cushion that may not exceed two months of escrow payments. The cushion is to ensure that there is enough money in your ESCROW account to make the payments on time.

    • If not provided at closing, the servicer of your loan must furnish you with an Initial ESCROW Account Statement within 45 days. This statement details expected escrow payments, disbursements and balances for the upcoming 12-month year. You will receive an Annual ESCROW Account Statement at the end of each year showing the previous year's activity. At that time, your lender must account to you for any surpluses that occur in your account and you also may be responsible for making up any shortages or deficiencies as provided by applicable federal law and regulations.

  • Am I supposed to receive a copy of the Good Faith Estimate of Settlement Costs?

    • When applying for a loan, RESPA requires your mortgage lender or broker to furnish you with a Good Faith Estimate of settlement charges that you will likely be required to pay. If you do not receive this estimate when you apply for the loan, the lender or mortgage broker must mail or deliver it to you within the next three business days.

    • Bear in mind that these amounts are only estimates. Market conditions may affect prices and your costs may change - the estimate is not a guarantee. Keep your Good Faith Estimate and compare it with the final settlement costs. Question your lender about any changes.

  • What are some of the fees associated with a closing or settlement?

    • Application fee - The application fee covers the cost of processing your loan application. Appraisal fee - The appraisal fee covers the costs of an appraisal of the value of the home you are planning to buy.
      Discount Point - A discount point is a one-time charge offered by the lender or broker allowing you to obtain a mortgage at a lower interest rate. Each point is equal to one percent of the mortgage amount. Points are paid to the lender. Loan Origination fee - This fee covers any remaining costs associated with originating and processing your mortgage application. Processing Fee - The processing fee covers the cost of processing your loan.

  • What is Private Mortgage Insurance (PMI) and do I have to have it?

    • Private mortgage insurance protects the lender against non-payment of the loan. It is often required for loans where the downpayment is less than 20 percent of the sales price. PMI enables the lender to make a loan at a higher risk level. You may be billed monthly, annually or pay an initial lump sum. Ask your lender if PMI is required and what the cost will be.

    • Federal law effective July 29, 1999, provides for cancellation or automatic termination of the requirement for private mortgage insurance in connection with loans that are secured by a single-family dwelling that is the borrower's primary residence under certain conditions.

    • If private mortgage insurance is required in connection with your loan, you will receive a notice from your lender at closing about your rights of cancellation and automatic termination of PMI.

    • For more information on PMI, please refer to position paper.

    • Don't confuse private mortgage insurance with mortgage life, which is a policy that will pay off a mortgage in the event of the borrower's death and is optional if the borrower chooses to purchase it.

  • After closing, what do I do if I have a question, problem or complaint concerning my loan?

    • RESPA requires the company collecting your loan payments (your servicer) to respond to your requests. If you have any questions during the course of your loan, write to your servicer (it must be separate from your payment) and call it a "qualified written request under Section 6 of RESPA."

    •  Describe the problem you are having and include your name and account number. The servicer must investigate the problem and, if necessary, make appropriate corrections within 60 business days. You may also send a copy of your complaint to the HUD Office of Consumer and Regulatory Affairs. For further questions concerning the Real Estate Settlement Procedures Act (RESPA), you can log on to www.hud.gov/fha/sfh/res/respa_hm.html

 

10 Things To Consider When Shopping

For A Loan
  1. How long has the company you are dealing with been in business? Do they have a good track record?
  2. Are you doing business with a mortgage lender or a mortgage broker? Fee structures may vary - ask!
  3. Generally the real estate agent or broker represents the seller and not the buyer. However, you can hire your own real estate broker, a buyer's broker, to represent your interests.
  4. How many offices or branches does the institution have? Do they service their own loans or outsource the service?
  5. Who are the principals (owners) of the organization?
  6. Shop around for interest rates. Determine what is to your financial advantage concerning interest rates, discount points and payment schedules.
  7. Know your credit history. Don't be caught by any surprises. Order a report and clean up your credit as part of the process of buying a home.
  8. Be prepared to demonstrate your financial responsibility.
  9. Know your debt to income ratio. Will a mortgage over-extend you?
  10. Seek out institutions whose names you know and trust. Be cautious of an organization that cannot provide you with satisfactory information about themselves, their fees and what you should expect in the process of obtaining a home loan.
  11. The U.S. Department of Housing and Urban Development provides a free brochure on buying a home. Contact them at 888/466-3487

 

Texas Mortgage Bankers Association

823 Congress Ave., Ste. 220

Austin, Texas 78701

Office: (512) 480-8622

 Fax: (512) 480-8621

 

 

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