Question about "Truth-in-lending" disclosure??
Hello BP community!
Im very proud to announce that me and my partner have finally gotten our first multi-family property under contract and have found financing for it! I'm very excited of course...but i do have a question about a piece of information that was provided by the lender, it's called the "Truth-in-Lending" disclosure. This is my first time taking out a mortgage so i hope you guys can enlighten me on this subject....
So over the phone, the lender gave me all the numbers, how much i needed for the down payment, the APR, the monthly principal and interest payments, pretty much everything. All of it sounded great!
Then she sent me all of the documents via email, and that's when i saw thei "Truth-in-Lending" disclosure... Here, almost all of the numbers were different! Not by much, but still they were different. The APR was off, the monthly payments, almost everything...plus, they added the "estimated taxes + (escrow) insurance"...what does that even mean?
Of course, i havent signed anything yet because i was caught off guard by this, but is this normal? Are these just estimates? Any help would be much appreciated
-Carlos
#1 Foreclosures Contributor
- Real Estate Professional
- West Palm Beach, FL
- 13,432
- Votes |
- 23,374
- Posts
#1 Foreclosures Contributor
- Real Estate Professional
- West Palm Beach, FL
Taxes and insurance are required to be paid monthly to your lender. Right now they are estimated because obviously you don't have an insurance policy yet. You will also be paying a full year, probably 15 months worth, up front for taxes and insurance, then 1/12th of the yearly amount every month.
You are probably confusing the APR with the interest rate which is common. The interest rate is what it is, and is also listed on the 1003 (Uniform Residential Loan Application), the Good Faith Estimate, and possibly a few other documents.
However the APR is actually different because it factors in the other fee's associated with the loan and sometimes rolled into the loan. Your APR on a mortgage will be higher than the actual interest rate because of this. It is a common mistake because this is one of the few times it is different, unlike most auto loan and credit cards. Below is the exact definition of APR.......
APR is the effective rate on a loan, after subtracting required loan fees from the face amount of the loan. Unless the loan involves no required closing costs, the APR will always be higher than the actual interest rate.
APR is a rate that government regulators require lenders to disclose to prospective borrowers. Since lender fees can vary widely from one lender to another, APR makes it easier for borrowers to determine the true cost of one loan versus another when all lender fees are reflecting in the calculation.
And all of the fees are estimated. You'll most likely get an updated, more accurate, TIL once the loan fees are set.