Making a decision to purchase real estate involves a significant commitment of your financial resources and future income; it's also a complicated process. You need time to review complex financial and real estate closing documents to make informed decisions. Federal law requires that lenders give you certain essential information before closing so you can make a decision without undue pressure.
The Real Estate Settlement Procedures Act is a federal statutory scheme that is intended to protect you by making you a better consumer of real estate settlement services. RESPA requires disclosures at four different periods during your property buying process: at the time of loan application, before the closing of your purchase, at the time of closing and after closing. RESPA applies to loans that are secured by a mortgage on any one-to-four-unit family property including original purchase loans, refinance loans, home improvement loans and home equity loans.
RESPA Disclosures at Application and Before Closing
RESPA requires disclosures long before closing. At the time of your mortgage loan application, or within three days of the application, the lender must provide you a special information booklet about settlement services, a good faith estimate and a mortgage servicing disclosure statement. Any time a lender refers you to a settlement service in which it has an ownership interest, it must provide you a disclosure of the fact before closing. You also have a right to see a draft of the HUD-1 settlement statement one day before closing upon request.
RESPA Disclosures During and After Closing
RESPA also requires certain disclosures during and after closing. During your real estate closing, you must receive the settlement statement -- HUD-1 -- which discloses all the settlement costs of your real estate purchase transaction. The lender has 45 days after closing to provide the escrow statement, but it is usually given at closing. It disclosures your estimated taxes, insurance and any other charges that will be paid out of the escrow account as well as the escrow payment required and any required cushion. After closing, you'll receive an annual escrow statement. If the loan servicer sells or assigns your loan to someone else, you'll receive notice.
TILA & Its Disclosures
The Truth in Lending Act is another consumer protection law that protects consumers from lenders and creditors. Regulation Z is the relevant regulation for consumer loans secured by a consumer dwelling. It generally requires disclosure of the amount of the loan, the annual interest rate, the number of payments and due dates. A good faith estimate and disclosure that you aren't required to accept the loan must be given to you within three business days after the loan application and at least seven business days before the consummation of the loan.
Shawn M. Grimsley holds a bachelor's degree in political science, master's degree in public administration and a Juris Doctor. He practiced law for 10 years, focusing on general business law, securities law, real estate and civil litigation. Grimsley now serves as a teacher and writer.