Help! I Need My Documents Explained!

By Gina Pogol
Mortgage Credit Problems Columnist

Bob Asks: Dear Gina, I am dealing with a mortgage broker that I found online and who is not in my area. He sent me a bunch of documents with highlighted places for me to sign. I don't understand them! Is this a common practice, and what should I do?

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Gina Says:

Dear Bob,

Mortgage brokers can be valuable helpers for those who need bad credit mortgages. They know what many wholesale bad credit lenders offer and what their guidelines are, and can send your application out to several and get you the best deal. And yes, it is common for mortgage brokers and lenders to complete a mortgage application package and then send it out for your signature. However, you should never sign anything you don't understand. The most important documents are:

Your Mortgage Application

If it's filled out, make sure it's done correctly. There are likely to be small discrepancies in your debts because the lender gets the balances straight from your credit report, but if there are major differences or there are debts that have been paid off or discharged in bankruptcy, you need to have that corrected. Ditto with your income--lenders have very specific guidelines for calculating income, and especially if you are self-employed, the application data may differ from what you think of as your income. That said, if your income has been clearly overstated, don't sign the application without a very good explanation from your loan officer.

The Good Faith Estimate

This form is one of the most important. It shows you what your fees will be, and discloses any loan features like balloon payments, negative amortization, interest-only, prepayment penalties, and other things that used to be harder to find. You may get more than one Good Faith Estimate (GFE)--your lender has to re-disclose when any material change occurs in the process, for example, if you change jobs, the property appraises for less than expected, or you lock in an interest rate. If you don't understand this disclosure (and broker GFEs can be complicated), get your lender on the phone and don't sign until you are comfortable with it.

The Truth-in-Lending (TIL) Disclosure

This form is very important--so important, in fact, that lenders are not allowed to charge you any fees (other than for a credit report) until 7 days after you get this form. The TIL discloses a few biggies--first, your APR, which expresses the cost of your mortgage (interest and fees) as an interest rate for easier comparison between programs with different rates and fees. Second, it gives you the cost of credit over the life of the loan, and finally, it tells you what your payments are. you should get a new one of these if anything material changes.

Conference Call

Your loan officer should want you to be comfortable with your mortgage. He or she should have no problem getting on the phone with you and explaining until you are comfortable with what you are signing. You may want to have another discussion when you lock in your mortgage rate, and you should make sure that your loan agent will be available when you sign your final mortgage documents. Don't sign the final ones unless you are completely at ease, because you are responsible for anything you agree to at that point.

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