A mortgage loan disclosure statement outlines the important details of a prospective loan. Federal law requires lenders to provide a disclosure statement to the borrower to make sure he is aware of all terms before signing any legally binding loan documents. The mortgage loan disclosure statement is also known as a "truth in lending" statement because it allows borrowers to compare terms from lenders in a standardized form.
The mortgage loan disclosure statement must be given to the prospective borrower three business days after a written loan application is filed. If the loan is scheduled to start prior to this date, the lender must provide the disclosure statement before the borrower is legally obligated to repay any funds. The lender must keep a copy of the statement on file for three years after this date.
The disclosure statement must list the borrower's name and address, along with the address of the property being used as collateral for the loan. It should include names and contact information for the lender and any real estate brokers involved in the transaction. The length of the mortgage, frequency of payments, interest rate and whether the rate is fixed or variable must also be listed. If the loan has a variable interest rate, the disclosure statement must include the adjustment dates.
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All relevant financial conditions of the loan must be documented, including the loan amount, down payment, points, appraisal fees, credit check fees and prepayment penalties. The disclosure statement must list the payment dates and amounts, not including any escrow payments for taxes or insurance premiums. It must also describe any financial benefits the broker will receive on the transaction, such as commissions or referral fees. If the loan includes a balloon payment, the statement must explain any possible fees involved in refinancing the loan to avoid the balloon payment and warn of the potential of foreclosure if the payment is not made on time.
The document must list any parties with liens on the property and the amount of the loan funds that will be paid to each creditor. It must also include language warning the borrower of the consequences of not disclosing an existing lien on his loan application. If the loan is denied because of an undisclosed lien that is discovered later, the borrower might might be liable for fees, commissions and expenses incurred while processing the loan.
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