RESPA or
the Real Estate Settlement Procedures Act, requires a lender to give
a borrower certain disclosures during the course of their loan. Some
disclosures will list the costs associated with the closing, other
disclosures will outline the lender's closings costs and escrow account
practices. Another disclosure will describe the business relationship
between the settlement service providers. These disclosures are called
"RESPA Disclosures" because they are mandated by the Real Estate Settlement
Procedures Act.
The first RESPA form a Borrower is likely
to see is the Good Faith Estimate of Settlement Costs. The lender
will be required to give you a Good Faith Estimate (GFE) of the settlement
charges you will likely have to pay at closing. The lender will give
you a copy of this disclosure either when you apply for your loan
or within the next three business days after application. You should
be aware that the costs listed in the Good Faith Estimate are only
an estimate and the actual costs at closing may vary from these estimates.
The GFE is not a guarantee, but you can compare the estimated closing
costs with the actual closing costs and ask the lender or closing
agent any questions at the closing.
Your lender will also be required to
give you a copy of a Servicing Disclosure Statement, which will tell
you if your lender anticipates that someone else will be servicing
your loan. What this means is that your lender may not be the agency
collecting your monthly mortgage payments. You must be told when you
apply for your loan or within three business days, if your lender
expects this to happen.
If a lender, real estate broker or other
party in your closing refers you to an affiliate for a settlement
service, such as when a real estate brokers refers you to an affiliated
mortgage broker, the referring party is required to give you an Affiliated
Business Arrangement Disclosure. This form will explain that you are
not required to use the affiliate and are free to shop for other providers,
if you choose to do so.
One day prior to your closing, you are
given the right to look over the HUD-1 Settlement Statement. The HUD-1
statement is the final closing statement for your transaction and
will itemize the services provided to you and all the fees which were
charged or credited to you. If you will not be closing at a settlement
meeting, the escrow agent will mail you your HUD-1 statement after
closing and you will not have the right of inspect the statement one
day before the closing date. Most closings do involve a closing meeting,
so generally you will receive a HUD-1 statement prior to the closing
day.
You may be required to establish an
escrow or impound account with the lender to be sure that your taxes
and insurance premiums are paid on time. You may have to pay an initial
amount at closing to start the account and an additional amount each
month, together with your regular mortgage payment. Your escrow account
payments may include a little extra to ensure that the lender has
enough money to make the payments when due. Under RESPA
regulations, your lender is limited in the number of escrow payments
they may collect. At the closing, or within the next 45 days, the
person servicing your loan must give you an initial escrow account
statement. This form will show all of the payments which are expected
to be deposited into the escrow account and all of the disbursements
which are expected to be made from the escrow account during the year
ahead. You should be sent a disclosure each year which shows the prior
year's activity and any adjustment which are necessary for the year
ahead.
