2. Type of Mortgage and Terms of Credit. 4. Applicant Information Co-Applicant's Name. Social Security No. Date of Birth.

Transcription

1 ancsh are s Universa Credit Appication (Consumer Rea Estate) 1. Type of Appication (Check ony one of the four checkboxes; and sign, if joint credit. Use another appication if more than two appicants.) Individua Credit. If checked, this is an Appication for Individua Credit - reying soey on my income and assets. Individua Credit with Another. If checked, this is an Appication for Individua Credit - reying on my income and assets and on income and/or assets of another as a basis for oan quaification. (Compete Appicant and Co-Appicant sections.) Individua Credit (Community Property State). If checked, this is an Appication for Individua Credit - reying on my income or assets. The income or assets of my spouse (or other person), who has community property rights pursuant to state aw, wi not be used as a basis for oan quaification. However, his or her iabiities must be considered because my spouse (or other person) has community property rights pursuant to appicabe aw, and, as Appicant, I reside in a community property state, the property that wi secure the oan is ocated in a community property state, or I am reying on other property ocated in a community property state as a basis for repayment of the oan. (Compete Appicant and Co-Appicant sections.) Joint Credit. If checked, this is an Appication for Joint Credit. By signing beow, the Appicant and Co-Appicant agree that each of us intend to appy for joint credit. (Compete Appicant and Co-Appicant sections.) Appicant for Joint Credit Co-Appicant for Joint Credit Mortgage Appied For Home Purchase or Refinancing 2. Type of Mortgage and Terms of Credit Subject Property Address (street, city, state & ZIP) Lega Description of Subject Property (attach description if necessary) Home Equity Loan Lender's Case No. Home Equity Line of Credit Amount/Credit Limit Interest Rate No. of Months Amortization Type % Fixed ARM 3. Property Information and Purpose of Credit No. of Units Year Buit Purpose of Loan Property wi be: Purchase Construction Other: Primary Secondary Investment Refinance Construction-Permanent Residence Residence Compete this ine if construction or construction-permanent oan. Year Lot Origina Cost Amount Existing (a) Present Vaue of (b) Cost of Tota (a + b) Acquired Liens Lot Improvements Compete this ine if this is a refinance oan. Describe Improvements Year Origina Cost Amount Existing Acquired Liens Purpose of Refinance made to be made Cost: Tite wi be hed in what Name(s) Manner in which Tite wi be hed Estate wi be hed in: Fee Simpe Source of Down Payment, Settement Charges, and/or Subordinate Financing (expain) Leasehod (show expiration date) Appicant Appicant's Name 4. Appicant Information Co-Appicant's Name Co-Appicant Socia Security No. Primary Phone Ce Date of Birth Socia Security No. Primary Phone Ce Date of Birth ID Type & No. Issued By Issue Date Exp. Date ID Type & No. Issued By Issue Date Exp. Date E-mai Address E-mai Address Married Separated Dependents (as defined by state aw; (not isted by Co-Appicant) inc. domestic partnership, civi union) Unmarried No. Ages (incuding singe, divorced, widowed) Present Address Own Rent No. Yrs. Married Separated Dependents (as defined by state aw; (not isted by Appicant) inc. domestic partnership, civi union) Unmarried No. Ages (incuding singe, divorced, widowed) Present Address Own Rent No. Yrs. Maiing Address, if different from Present Address Maiing Address, if different from Present Address Former Address Own Rent No. Yrs. Former Address Own Rent No. Yrs. Universa Credit Appication-Rea Estate VMP Woters Kuwer Financia Services Bankers Systems *, UCA-RE 3/1/2014 VMPC148R (1403).00 Page 1 of 5

2 Appicant Name & Address of Empoyer Sef Empoyed 5. Empoyment Information Co-Appicant Yrs. on this job Name & Address of Empoyer Sef Empoyed Yrs. on this job Yrs. empoyed in this ine of work/profession Yrs. empoyed in this ine of work/profession Position/Tite/Type of Business Business Phone Position/Tite/Type of Business Business Phone If empoyed in current position for ess than two years or if currenty empoyed in more than one position, compete the foowing: Name & Address of Empoyer Sef Empoyed Dates (from - to) Name & Address of Empoyer Sef Empoyed Dates (from - to) Position/Tite/Type of Business Name & Address of Empoyer Sef Empoyed Business Phone Gross Monthy Income Dates (from - to) Position/Tite/Type of Business Name & Address of Empoyer Business Phone Gross Monthy Income Sef Empoyed Dates (from - to) Business Phone Business Phone Position/Tite/Type of Business Gross Monthy Income Gross Monthy Income Position/Tite/Type of Business 6. Monthy Income and Combined Housing Expense Information Appicant Co-Appicant Tota Combined Monthy Housing Expense Present Gross Monthy Income Proposed Base Emp. Income* Rent Overtime First Mortgage (P&I) Bonuses Other Financing (P&I) Commissions Hazard Insurance Dividends/Interest Rea Estate Taxes Net Renta Income Other (before competing, see the notice in "Describe Other Income," beow) Mortgage Insurance Homeowner Assn. Dues Other Tota Tota * Sef Empoyed Appicant(s) may be required to provide additiona documentation such as tax returns and financia statements. A/C Describe Other Income Notice: Aimony, chid support, or separate maintenance income need not be reveaed if the Appicant (A) or Co-Appicant (C) does not choose to have it considered for repaying this oan. Monthy Amount 7. Assets and Liabiities This Statement and any appicabe supporting schedues may be competed jointy by both married and unmarried Co-Appicants if their assets and iabiities are sufficienty joined so that the Statement can be meaningfuy and fairy presented on a combined basis; otherwise, separate Statements and Schedues are required. If the Co-Appicant section was competed about a non-appicant spouse or other person, this Statement and supporting schedues must aso be competed about that spouse or other person. Competed Jointy Not Jointy Schedue of Rea Estate Owned. (If additiona properties are owned, use continuation sheet.) Property Address (enter S if sod, PS if pending sae, Type of Present Amount of Gross Renta Mortgages & Property Market Vaue Income R if renta for income or O for other) Liens Mortgage Payments Insurance, Maintenance, Taxes & Misc. Net Renta Income Totas List any additiona names under which credit has previousy been received and indicate appropriate creditor name(s) and account number(s): Aternate Name Creditor Name Account Number Universa Credit Appication-Rea Estate VMPC148R (1403).00 Bankers Systems * VMP, UCA-RE 3/1/2014 Woters Kuwer Financia Services Page 2 of 5

3 Assets Description Cash deposit toward purchase hed by: List checking and savings accounts beow Name and address of Bank, S&L, or Credit Union 7. Assets and Liabiities (Continued) Cash or Market Vaue Liabiities and Pedged Assets. List the creditor's name, address, and account number for a outstanding debts, incuding automobie oans, revoving charge accounts, rea estate oans, aimony, chid support, stock pedges, etc. Use continuation sheet, if necessary. Indicate by (*) those iabiities, which wi be satisfied upon sae of rea estate owned or upon refinancing of the subject property. Liabiities Name and address of Company Monthy Payment & Months Left to Pay Payment/ Months Unpaid Baance Acct. no. Acct. no. Revoving Name and address of Bank, S&L, or Credit Union Name and address of Company Payment/ Months Acct. no. Name and address of Bank, S&L, or Credit Union Acct. no. Name and address of Company Revoving Payment/ Months Acct. no. Name and address of Bank, S&L, or Credit Union Acct. no. Name and address of Company Revoving Payment/ Months Acct. no. Stocks & Bonds (Company name/number & description) Acct. no. Name and address of Company Revoving Payment/ Months Life Insurance net cash vaue Face amount: Subtota Liquid Assets Rea estate owned (enter market vaue from schedue of rea estate owned) Vested interest in retirement fund Net worth of business(es) owned (attach financia statement) Automobies owned (make and year) Acct. no. Name and address of Company Acct. no. Name and address of Company Acct. no. Aimony/Chid Support/Separate Maintenance Payments Owed to: Revoving Payment/ Months Revoving Payment/ Months Revoving Job-Reated Expense (chid care, union dues, etc.) Other Assets (itemize) Other Assets (from continuation page, if any) Tota Assets (a) a. Are there any outstanding judgments against you? b. Have you been decared bankrupt within the past 10 years? c. Have you had property forecosed upon or given tite or deed in ieu thereof in the ast 7 years? d. Are you a party to a awsuit? Appicant Yes No Tota Monthy Payments Other Liabiities (from continuation page, if any) Net Worth Tota (a - b) Liabiities (b) 8. Decarations Co-Appicant Yes No e. f. Have you directy or indirecty been obigated on any oan which resuted in forecosure, transfer of tite in ieu of forecosure, or judgment? Are you presenty deinquent or in defaut on any Federa debt or any other oan, mortgage, financia obigation, bond, or oan guarantee? Appicant Yes No Co-Appicant Yes No Universa Credit Appication-Rea Estate VMP Woters Kuwer Financia Services Bankers Systems *, UCA-RE 3/1/2014 VMPC148R (1403).00 Page 3 of 5

4 g. h. i. j. k.. Are you obigated to pay aimony, chid support, or separate maintenance? Is any part of the down payment borrowed? Are you a co-maker or endorser on a note? Are you a U.S. citizen? Are you a permanent resident aien? Do you intend to occupy the property as your primary residence? 8. Decarations (Continued) Appicant Co-Appicant Yes No Yes No m. Have you had an ownership interest in a property in the ast three years? (1) What type of property did you own -- principa residence (PR), second home (SH), or investment property (IP)? How did you hod tite to the home -- soey by yoursef (S), jointy with your spouse (SP), or jointy with another person (O)? Appicant Yes No 9. Continuation and Additiona Information Instructions. Use this section if you need more space to compete the Universa Credit Appication. Mark "A" for Appicant and "C" for Co-Appicant. Use this space if you answered "Yes" to any of the questions in Section 8. n. (2) Are there any other equity oans on the property? Co-Appicant Yes No 10. Federa Notices Important Information to Appicant(s). To hep the government fight the funding of terrorism and money aundering activities, federa aw requires a financia institutions to obtain, verify, and record information that identifies each person who appies for a oan or opens an account. What this means for you. When you appy for a oan or open an account, we wi ask for your name, address, date of birth, and other information that wi aow us to identify you. We may aso ask to see your driver's icense and/or other identifying documents. In some instances, we may use outside sources to confirm the information. The information you provide is protected by our privacy poicy and federa aw. Fase Statements. By signing beow, I/we fuy understand that it is a federa crime punishabe by fine or imprisonment, or both, to knowingy make any fase statements concerning any of the above facts as appicabe under the provisions of Tite 18, United States Code, Section 1001, et seq. 11. State Notices Caifornia Residents. Each appicant, if married, may appy for a separate account. Massachusetts Residents. Under Massachusetts statute, Mass. Gen. L. ch. 184, Section 17B, you, the Appicant (and Co-Appicant) are entited to know the foowing: 1. The responsibiity of the attorney for the Mortgagee is to protect the interest of the Mortgagee. 2. Mortgagors may, at their own expense, engage an attorney of their own seection to represent their interests in the transaction. For Home Equity Line of Credit. The current annua percentage rate for finance charges and, if the rate may vary, a statement to that effect and of the circumstances under which the rate may increase and whether there are any imitations on any such increase, as we as the effects of any such increase; the conditions under which a finance charge may be imposed, incuding the time period within which any credit extended may be repaid without incurring a finance charge; whether any annua fee is charged and the amount of any such fee; and whether any other charges or fees may be assessed, the purposes for which they are assessed, and the amounts of any such charges or fees. New York Residents. A consumer report may be ordered in connection with your appication. Upon your request, we wi inform you whether or not a report was ordered. If a report was ordered, we wi te you the name and address of the consumer reporting agency that provided the report. Subsequent reports may be ordered or utiized in connection with an update, renewa or extension of credit for which you have appied. Ohio Residents. The Ohio aws against discrimination require a creditors make credit equay avaiabe to a creditworthy customers, and that credit reporting agencies maintain separate credit histories on each individua upon request. The Ohio Civi Rights Commission administers compiance with this aw. Any person who, with intent to defraud or knowing that he is faciitating a fraud against an insurer, submits an appication or fies a caim containing a fase or deceptive statement is guity of insurance fraud. Texas Residents. The owner of the homestead is not required to appy the proceeds of the extension of credit to repay another debt except debt secured by the homestead or debt to another ender. Wisconsin Residents. Notice to Married Appicants. No provision of any marita property agreement, uniatera statement under Wisc. Statutes or a court decree under Wisc. Statutes adversey affects the interest of the ender uness the ender, prior to the time the credit is granted, is furnished a copy of the agreement, statement or decree or has actua knowedge of the adverse provision when the obigation to the ender is incurred. For married Wisconsin Residents. The credit being appied for, if granted, wi be incurred in the interest of my marriage or famiy. I understand the creditor may be required by aw to give notice of this transaction to my spouse. 12. Acknowedgment and Agreement Each of the undersigned specificay represents to Lender and to Lender's actua or potentia agents, brokers, processors, attorneys, insurers, servicers, successors and assigns and agrees and acknowedges that: (1) the information provided in this appication is true and correct as of the date set forth opposite my signature and that any intentiona or negigent misrepresentation of this information contained in this appication may resut in civi iabiity, incuding monetary damages, to any person who may suffer any oss due to reiance upon any misrepresentation that I have made on this appication, and/or in crimina penaties incuding, but not imited to, fine or imprisonment or both under the provisions of Tite 18, United States Code, Sec. 1001, et seq.; (2) the oan requested pursuant to this appication (the "Loan") wi be secured by a mortgage or deed of trust on the property described in this appication; (3) the property wi not be used for any iega or prohibited purpose or use; (4) a statements made in this appication are made for the purpose of obtaining a residentia mortgage oan; (5) the property wi be occupied as indicated in this appication; (6) the Lender, its servicers, successors or assigns may retain the origina and/or an eectronic record of this appication, whether or not the Loan is approved; (7) the Lender and its agents, brokers, insurers, servicers, successors and assigns may continuousy rey on the information contained in the appication, and I am obigated to Universa Credit Appication-Rea Estate VMP Woters Kuwer Financia Services Bankers Systems *, UCA-RE 3/1/2014 VMPC148R (1403).00 Page 4 of 5

5 12. Acknowedgment and Agreement (Continued) amend and/or suppement the information provided in this appication if any of the materia facts that I have represented herein shoud change prior to cosing of the Loan; (8) in the event that my payments on the Loan become deinquent, the Lender, its servicers, successors or assigns may, in addition to any other rights and remedies that it may have reating to such deinquency, report my name and account information to one or more consumer reporting agencies; (9) ownership of the Loan and/or administration of the Loan account may be transferred with such notice as may be required by aw; (10) neither Lender nor its agents, brokers, insurers, servicers, successors or assigns has made any representation or warranty, express or impied, to me regarding the property or the condition or vaue of the property; and (11) my transmission of this appication as an "eectronic record" containing my "eectronic signature," as those terms are defined in appicabe federa and/or state aws (excuding audio and video recordings), or my facsimie transmission of this appication containing a facsimie of my signature, sha be as effective, enforceabe and vaid as if a paper version of this appication were deivered containing my origina written signature. Consent. You authorize us to contact you using any of the teephone numbers isted on this Credit Appication or that you subsequenty provide us in connection with your credit account - regardess whether the number we use is assigned to a paging service, ceuar teephone service, speciaized mobie radio service or other radio common carrier service or any other service for which you may be charged for the ca. You further authorize us to contact you through the use of voice, text and emai and through the use of pre-recorded/artificia voice messages or an automated diaing device. Acknowedgment. Each of the undersigned hereby acknowedges that any owner of the Loan, its servicers, successors and assigns, may verify or reverify any information contained in this appication or obtain any information or data reating to the Loan, for any egitimate business purpose through any source, incuding a source named in this appication or a consumer reporting agency. X Appicant's Signature Date X Co-Appicant's Signature Date Instruction to Lender: Cross out this entire section (or instruct the appicant to do so), if this information is not required by aw for this type of credit. The foowing information is requested by the Federa Government for certain types of oans reated to a dweing in order to monitor the Lender's compiance with equa credit opportunity, fair housing and home mortgage discosure aws. You are not required to furnish this information, but are encouraged to do so. The aw provides that a ender may not discriminate either on the basis of this information, or on whether you choose to furnish it. If you furnish the information, pease provide both ethnicity and race. For race, you may check more than one designation. If you do not furnish ethnicity, race, or sex, under Federa reguations, the Lender is required to note the information on the basis of visua observation or surname. If you do not wish to furnish the information, pease check the box beow. Appicant Ethnicity: Race: Sex: This information was provided: Loan Originator's Signature 13. Information for Government Monitoring Purposes I do not wish to furnish this information Hispanic or Latino Not Hispanic or Latino American Indian or Aaska Native Native Hawaiian or Other Pacific Isander White Femae Mae Co-Appicant Ethnicity: Race: Asian Back or African American Sex: For Mortgage Loan Originator In a face-to-face interview By the appicant and submitted by fax or mai Date I do not wish to furnish this information Hispanic or Latino Not Hispanic or Latino American Indian or Aaska Native Asian Back or African Native Hawaiian or Other Pacific Isander White American Femae Mae In a teephone interview By the appicant and submitted via e-mai or the Internet Loan Originator's Phone Number X Loan Originator's Name Loan Origination Company's Name Loan Originator Identifier Loan Origination Company Identifier Loan Origination Company's Address a. Purchase price b. Aterations, improvements, repairs c. Land (if acquired separatey) d. Refinance (incude debts to be paid off) e. Estimated prepaid items f. Estimated cosing costs g. PMI, MIP, Funding Fee h. Discount (if Appicant wi pay) i. Tota costs (add items a through h) j. Subordinate financing Transaction Worksheet - Optiona For Lender's Use k. Appicant's cosing costs paid by Seer. Other Credits (expain) m. Loan amount (excude PMI, MIP, Funding Fee financed) n. PMI, MIP, Funding Fee financed o. Loan amount (add m & n) p. Cash from/to Appicant (subtract j, k, & o from i) Lender's Initia Lien Position First Lien Hoder's Name & Address (if any) Second Lien Hoder's Name & Address (if any) First Lien Second Lien Subordinate Lien Loan No. Loan No. Date Appication Received Received By Amount Requested Decision Decision Date Decision By Approved Denied HMDA Reportabe Amount Approved Initia Advance (if appicabe) Funding Date Yes Refinancing Rescindabe Eary Discosures Given High Cost Mortgage Yes Yes Cash Out Yes Yes, on High Priced Mortgage Yes Universa Credit Appication-Rea Estate VMP Woters Kuwer Financia Services Bankers Systems *, UCA-RE 3/1/2014 VMPC148R (1403).00 Page 5 of 5

6 TYPE OF CREDIT REQUESTED (appies to business and consumer credit) Pease check to indicate the type of credit you are requesting. Secured Unsecured Individua Credit reying soey on my income and assets. Individua Credit reying on my income and asset as we as Income or assets of another. Joint Credit - we intend to appy for joint credit. Date Date Signature Signature Appication taken by phone Date Officer Signature FEDERAL CREDIT APPLICATION INSURANCE DISCLOSURE (appies to Consumer credit ony) I have appied for an extension of credit with you. You are soiciting, offering, or seing me an insurance product or annuity in connection with this extension of credit. FEDERAL LAW PROHIBITS YOU FROM CONDITIONING THE EXTENSION OF CREDIT ON EITHER: 1. My purchase of an insurance product or annuity from you or from any of your affiiates; or 2. My agreement not to obtain, or a prohibition on me from obtaining, an insurance product or annuity from an unaffiiated entity. By signing, I acknowedge that I have received a copy of this form on today s date. Uness this discosure is provided eectronicay or I have appied for credit by mai, I aso acknowedge that you have provided this discosure to me oray. Consumer Date Consumer Date

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12 Rev. 11/11/11 FACTS Why? What? How? WHAT DOES CHILLICOTHE STATE BANK DO WITH YOUR PERSONAL INFORMATION? Financia companies choose how they share your persona information. Federa aw gives consumers the right to imit some but not a sharing. Federa aw aso requires us to te you how we coect, share, and protect your persona information. Pease read this notice carefuy to understand what we do. The types of persona information we coect and share depend on the product or service you have with us. This information can incude: Socia Security number and account baances Account transactions and transaction history Credit history and payment history When you are no onger our customer, we continue to share your information as described in this notice. A financia companies need to share customers' persona information to run their everyday business. In the section beow, we ist the reasons financia companies can share their customers' persona information; the reasons Chiicothe State Bank chooses to share; and whether you can imit this sharing. Reasons we can share your persona information For our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and ega investigations, or report to credit bureaus For our marketing purposes to offer our products and services to you For joint marketing with other financia companies For our affiiates everyday business purposes information about your transactions and experiences For our affiiates everyday business purposes information about your creditworthiness For nonaffiiates to market to you Does Chiicothe State Bank share? Yes Yes No No No No Can you imit this sharing? No No We Don t Share We Don t Share We Don t Share We Don t Share Questions? Ca

13 Page 2 Who we are Who is providing this notice? What we do How does Chiicothe State Bank protect my persona information? Chiicothe State Bank To protect your persona information from unauthorized access and use, we use security measures that compy with federa aw. These measures incude computer safeguards and secured fies and buidings. How does Chiicothe State Bank coect my persona information? Why can t I imit a sharing? Definitions Affiiates We coect your persona information, for exampe, when you Open an account or deposit money Pay your bis or use your debit card Appy for a oan We aso coect your persona information from others, such as credit bureaus, affiiates, or other companies. Federa aw gives you the right to imit ony sharing for affiiates everyday business purposes information about your creditworthiness affiiates from using your information to market to you sharing for nonaffiiates to market to you State aws and individua companies may give you additiona rights to imit sharing. Companies reated by common ownership or contro. They can be financia and nonfi nancia companies. Chiicothe State Bank does not share with our affiiates. Nonaffiiates Joint marketing Companies not reated by common ownership or contro. They can be financia and nonfi nancia companies. Chiicothe State Bank does not share with nonaffiiates so they can market to you. A forma agreement between nonaffiiated financia companies that together market financia products or services to you. Chiicothe State Bank does not jointy market. Other important information

14 FRB:Consumer Handbook on Adjustabe-Rate Mortgages Skip to content Printabe version (5 MB PDF) ESPAÑOL Mortgage Shopping Worksheet What Is an ARM? How ARMs Work: The Basic Features Types of ARMs Consumer Cautions Where to Get Information Gossary For More Information (1 of 22)6/5/2007 9:13:25 AM

15 FRB:Consumer Handbook on Adjustabe-Rate Mortgages Adjustabe-rate mortgages (ARMs) are oans with interest rates that change. ARMs may start with ower monthy payments than fixed-rate mortgages, but keep the foowing in mind: Your monthy payments coud change. They coud go up--sometimes by a ot--even if interest rates don't go up. Your payments may not go down much, or at a--even if interest rates go down. You coud end up owing more money than you borrowed--even if you make a your payments on time. If you want to pay off your ARM eary to avoid higher payments, you might have to pay a penaty. You need to compare features of ARMs to find the one that best fits your needs. See the Mortgage Shopping Worksheet. This handbook expains how ARMs work and discusses some of the issues that borrowers may face. It incudes ways to reduce the risks and gives some pointers about advertising and other ways you can get information from enders and other trusted advisers. Important ARM terms are defined in a gossary. And the Mortgage Shopping Worksheet can hep you ask the right questions and figure out whether an ARM is right for you. Ask enders to hep you fi out the worksheet so you can get the information you need to compare mortgages. What Is an ARM? An adjustabe-rate mortgage differs from a fixed-rate mortgage in many ways. With a fixed-rate mortgage, the interest rate stays the same during the ife of the oan. With an ARM, the interest rate changes periodicay, usuay in reation to an index, and payments may go up or down accordingy. Shopping for a mortgage is not as simpe as it used to be. To compare two ARMs with each other or to compare an ARM with a fixed-rate mortgage, you need to know about indexes, margins, discounts, caps on rates and payments, negative amortization, payment options, and recasting (recacuating) your oan. You need to consider the maximum amount your monthy payment coud increase. Most important, you (2 of 22)6/5/2007 9:13:25 AM

16 FRB:Consumer Handbook on Adjustabe-Rate Mortgages need to know what might happen to your monthy mortgage payment in reation to your future abiity to afford higher payments. Lenders generay charge ower initia interest rates for ARMs than for fixed-rate mortgages. At first, this makes the ARM easier on your pocketbook than a fixed-rate mortgage for the same oan amount. Moreover, your ARM coud be ess expensive over a ong period than a fixed-rate mortgage--for exampe, if interest rates remain steady or move ower. Against these advantages, you have to weigh the risk that an increase in interest rates woud ead to higher monthy payments in the future. It's a trade-off--you get a ower initia rate with an ARM in exchange for assuming more risk over the ong run. Here are some questions you need to consider: Is my income enough--or ikey to rise enough--to cover higher mortgage payments if interest rates go up? Wi I be taking on other sizabe debts, such as a oan for a car or schoo tuition, in the near future? How ong do I pan to own this home? (If you pan to se soon, rising interest rates may not pose the probem they do if you pan to own the house for a ong time.) Do I pan to make any additiona payments or pay the oan off eary? Lenders and Brokers Mortgage oans are offered by many kinds of enders--such as banks, mortgage companies, and credit unions. You can aso get a oan through a mortgage broker. Brokers "arrange" oans; in other words, they find a ender for you. Brokers generay take your appication and contact severa enders, but keep in mind that brokers are not required to find the best dea for you uness they have contracted with you to act as (3 of 22)6/5/2007 9:13:25 AM

17 FRB:Consumer Handbook on Adjustabe-Rate Mortgages your agent. Back to top How ARMs Work: The Basic Features Initia rate and payment The initia rate and payment amount on an ARM wi remain in effect for a imited period of time-- ranging from just 1 month to 5 years or more. For some ARMs, the initia rate and payment can vary greaty from the rates and payments ater in the oan term. Even if interest rates are stabe, your rates and payments coud change a ot. If enders or brokers quote the initia rate and payment on a oan, ask them for the annua percentage rate (APR). If the APR is significanty higher than the initia rate, then it is ikey that your rate and payments wi be a ot higher when the oan adjusts, even if genera interest rates remain the same. The adjustment period With most ARMs, the interest rate and monthy payment change every month, quarter, year, 3 years, or 5 years. The period between rate changes is caed the adjustment period. For exampe, a oan with an adjustment period of 1 year is caed a 1-year ARM, and the interest rate and payment can change once every year; a oan with a 3-year adjustment period is caed a 3-year ARM. Loan Descriptions Lenders must give you written information on each type of ARM oan you are interested in. The information must incude the terms and conditions for each oan, incuding information about the index and margin, how your rate wi be cacuated, how often your rate can change, imits on changes (or caps), an exampe of how high your monthy payment might go, and other ARM features such as negative amortization. (4 of 22)6/5/2007 9:13:25 AM

18 FRB:Consumer Handbook on Adjustabe-Rate Mortgages The index The interest rate on an ARM is made up of two parts: the index and the margin. The index is a measure of interest rates generay, and the margin is an extra amount that the ender adds. Your payments wi be affected by any caps, or imits, on how high or ow your rate can go. If the index rate moves up, so does your interest rate in most circumstances, and you wi probaby have to make higher monthy payments. On the other hand, if the index rate goes down, your monthy payment coud go down. Not a ARMs adjust downward, however--be sure to read the information for the oan you are considering. Lenders base ARM rates on a variety of indexes. Among the most common indexes are the rates on 1- year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). A few enders use their own cost of funds as an index, rather than using other indexes. You shoud ask what index wi be used, how it has fuctuated in the past, and where it is pubished--you can find a ot of this information in major newspapers and on the Internet. To hep you get an idea of how to compare different indexes, the foowing chart shows a few common indexes over an 11-year period ( ). As you can see, some index rates tend to be higher than others, and some change more often. But if a ender bases interest-rate adjustments on the average vaue of an index over time, your interest rate woud not change as dramaticay. (5 of 22)6/5/2007 9:13:25 AM

19 FRB:Consumer Handbook on Adjustabe-Rate Mortgages Back to top The margin To determine the interest rate on an ARM, enders add a few percentage points to the index rate, caed the margin. The amount of the margin may differ from one ender to another, but it is usuay constant over the ife of the oan. The fuy indexed rate is equa to the margin pus the index. If the initia rate on the oan is ess than the fuy indexed rate, it is caed a discounted index rate. For exampe, if the ender uses an index that currenty is 4% and adds a 3% margin, the fuy indexed rate woud be Index 4% +Margin 3% Fuy indexed rate 7% (6 of 22)6/5/2007 9:13:25 AM

20 FRB:Consumer Handbook on Adjustabe-Rate Mortgages If the index on this oan rose to 5%, the fuy indexed rate woud be 8% (5% + 3%). If the index fe to 2%, the fuy indexed rate woud be 5% (2% + 3%). Some enders base the amount of the margin on your credit record--the better your credit, the ower the margin they add--and the ower the interest you wi have to pay on your mortgage. In comparing ARMs, ook at both the index and margin for each program. No-Doc/Low-Doc Loans When you appy for a oan, enders usuay require documents to prove that your income is high enough to repay the oan. For exampe, a ender might ask to see copies of your most recent pay stubs, income tax fiings, and bank account statements. In a no-doc or ow-doc oan, the ender doesn't require you to bring proof of your income, but you wi usuay have to pay a higher interest rate or extra fees to get the oan. Lenders generay charge more for no-doc/ow-doc oans. Interest-rate caps An interest-rate cap paces a imit on the amount your interest rate can increase. Interest caps come in two versions: periodic adjustment caps, which imit the amount the interest rate can adjust up or down from one adjustment period to the next after the first adjustment, and ifetime caps, which imit the interest-rate increase over the ife of the oan. By aw, virtuay a ARMs must have a ifetime cap. Periodic adjustment caps (7 of 22)6/5/2007 9:13:25 AM

21 FRB:Consumer Handbook on Adjustabe-Rate Mortgages Let's suppose you have an ARM with a periodic adjustment interest-rate cap of 2%. However, at the first adjustment, the index rate has risen 3%. The foowing exampe shows what happens. Exampes in This Handbook A exampes in this handbook are based on a 200,000 oan amount and a 30-year term. Payment amounts in the exampes do not incude taxes, insurance, condominium or home-owner association fees, or simiar items. These amounts can be a significant part of your monthy payment. In this exampe, because of the cap on your oan, your monthy payment in year 2 is per month ower than it woud be without the cap, saving you 1, over the year. Some ARMs aow a arger rate change at the first adjustment and then appy a periodic adjustment cap to a future adjustments. A drop in interest rates does not aways ead to a drop in your monthy payments. With some ARMs that have interest-rate caps, the cap may hod your rate and payment beow what it woud have been if the (8 of 22)6/5/2007 9:13:25 AM

22 FRB:Consumer Handbook on Adjustabe-Rate Mortgages change in the index rate had been fuy appied. The increase in the interest that was not imposed because of the rate cap might carry over to future rate adjustments. This is caed carryover. So at the next adjustment date, your payment might increase even though the index rate has stayed the same or decined. The foowing exampe shows how carryovers work. Suppose the index on your ARM increased 3% during the first year. Because this ARM imits rate increases to 2% at any one time, the rate is adjusted by ony 2%, to 8% for the second year. However, the remaining 1% increase in the index carries over to the next time the ender can adjust rates. So when the ender adjusts the interest rate for the third year, the rate increases by 1%, to 9%, even if there is no change in the index during the second year. In genera, the rate on your oan can go up at any schedued adjustment date when the ender's standard ARM rate (the index pus the margin) is higher than the rate you are paying before that adjustment. Back to top Lifetime caps The next exampe shows how a ifetime rate cap woud affect your oan. Let's say that your ARM starts out with a 6% rate and the oan has a 6% ifetime cap--that is, the rate can never exceed 12%. Suppose the index rate increases 1% in each of the next 9 years. With a 6% overa cap, your payment woud never exceed 1, compared with the 2, that it woud have reached in the tenth year without a (9 of 22)6/5/2007 9:13:25 AM

23 FRB:Consumer Handbook on Adjustabe-Rate Mortgages cap. Payment caps In addition to interest-rate caps, many ARMs--incuding payment-option ARMs--imit, or cap, the amount your monthy payment may increase at the time of each adjustment. For exampe, if your oan has a payment cap of 7½%, your monthy payment won't increase more than 7½% over your previous payment, even if interest rates rise more. For exampe, if your monthy payment in year 1 of your mortgage was 1,000, it coud ony go up to 1,075 in year 2 (7½% of 1,000 is an additiona 75). Any interest you don't pay because of the payment cap wi be added to the baance of your oan. A payment cap can imit the increase to your monthy payments but aso can add to the amount you owe on the oan. (This is caed negative amortization.) Let's assume that your rate changes in the first year by 2 percentage points but your payments can increase no more than 7½% in any one year. The foowing graph shows what your monthy payments woud ook ike. (10 of 22)6/5/2007 9:13:25 AM

24 FRB:Consumer Handbook on Adjustabe-Rate Mortgages Whie your monthy payment wi be ony 1, for the second year, the difference of each month wi be added to the baance of your oan and wi ead to negative amortization. Some ARMs with payment caps do not have periodic interest-rate caps. In addition, as expained beow, most payment-option ARMs have a buit-in recacuation period, usuay every 5 years. At that point, your payment wi be recacuated (enders use the term recast) based on the remaining term of the oan. If you have a 30-year oan and you are at the end of year 5, your payment wi be recacuated for the remaining 25 years. The payment cap does not appy to this adjustment. If your oan baance has increased, or if interest rates have risen faster than your payments, your payments coud go up a ot. Back to top Types of ARMs Hybrid ARMs Hybrid ARMs often are advertised as 3/1 or 5/1 ARMs--you might aso see ads for 7/1 or 10/1 ARMs. These oans are a mix--or a hybrid--of a fixed-rate period and an adjustabe-rate period. The interest rate is fixed for the first few years of these oans--for exampe, for 5 years in a 5/1 ARM. After that, the rate may adjust annuay (the 1 in the 5/1 exampe), unti the oan is paid off. In the case of 3/1 or 5/1 ARMs (11 of 22)6/5/2007 9:13:25 AM

25 FRB:Consumer Handbook on Adjustabe-Rate Mortgages the first number tes you how ong the fixed interest-rate period wi be and the second number tes you how often the rate wi adjust after the initia period. You may aso see ads for 2/28 or 3/27 ARMs--the first number tes you how ong the fixed interest-rate period wi be, and the second number tes you the number of years the rates on the oan wi be adjustabe. Some 2/28 and 3/27 mortgages adjust every 6 months, not annuay. Interest-ony ARMs An interest-ony (I-O) ARM payment pan aows you to pay ony the interest for a specified number of years, typicay between 3 and 10 years. This aows you to have smaer monthy payments for a period of time. After that, your monthy payment wi increase--even if interest rates stay the same--because you must start paying back the principa as we as the interest each month. For some I-O oans, the interest rate adjusts during the I-O period as we. For exampe, if you take out a 30-year mortgage oan with a 5-year I-O payment period, you can pay ony interest for 5 years and then you must pay both the principa and interest over the next 25 years. Because you begin to pay back the principa, your payments increase after year 5, even if the rate stays the same. Keep in mind that the onger the I-O period, the higher your monthy payments wi be after the I-O period ends. Payment-option ARMs (12 of 22)6/5/2007 9:13:25 AM

26 FRB:Consumer Handbook on Adjustabe-Rate Mortgages A payment-option ARM is an adjustabe-rate mortgage that aows you to choose among severa payment options each month. The options typicay incude the foowing: a traditiona payment of principa and interest, which reduces the amount you owe on your mortgage. These payments are based on a set oan term, such as a 15-, 30-, or 40-year payment schedue. an interest-ony payment, which pays the interest but does not reduce the amount you owe on your mortgage as you make your payments. a minimum (or imited) payment that may be ess than the amount of interest due that month and may not reduce the amount you owe on your mortgage. If you choose this option, the amount of any interest you do not pay wi be added to the principa of the oan, increasing the amount you owe and your future monthy payments, and increasing the amount of interest you wi pay over the ife of the oan. In addition, if you pay ony the minimum payment in the ast few years of the oan, you may owe a arger payment at the end of the oan term, caed a baoon payment. The interest rate on a payment-option ARM is typicay very ow for the first few months (for exampe, 2% for the first 1 to 3 months). After that, the interest rate usuay rises to a rate coser to that of other mortgage oans. Your payments during the first year are based on the initia ow rate, meaning that if you ony make the minimum payment each month, it wi not reduce the amount you owe and it may not cover the interest due. The unpaid interest is added to the amount you owe on the mortgage, and your oan baance increases. This is caed negative amortization. This means that even after making many payments, you coud owe more than you did at the beginning of the oan. Aso, as interest rates go up, your payments are ikey to go up. Payment-option ARMs have a buit-in recacuation period, usuay every 5 years. At this point, your payment wi be recacuated (enders use the term recast) based on the remaining term of the oan. If you have a 30-year oan and you are at the end of year 5, your payment wi be recacuated for the remaining 25 years. If your oan baance has increased because you have made ony minimum payments, or if interest rates have risen faster than your payments, your payments wi increase each time your oan is (13 of 22)6/5/2007 9:13:25 AM

27 FRB:Consumer Handbook on Adjustabe-Rate Mortgages recast. At each recast, your new minimum payment wi be a fuy amortizing payment and any payment cap wi not appy. This means that your monthy payment can increase a ot at each recast. Lenders may recacuate your oan payments before the recast period if the amount of principa you owe grows beyond a set imit, say 110% or 125% of your origina mortgage amount. For exampe, suppose you made ony minimum payments on your 200,000 mortgage and had any unpaid interest added to your baance. If the baance grew to 250,000 (125% of 200,000), your ender woud recacuate your payments so that you woud pay off the oan over the remaining term. It is ikey that your payments woud go up substantiay. More information on interest-ony and payment-option ARMs is avaiabe in the Federa Reserve Board's brochure tited Interest-Ony Mortgage Payments and Payment-Option ARMs--Are They for You? Back to top Consumer Cautions Discounted interest rates Many enders offer more than one type of ARM. Some enders offer an ARM with an initia rate that is ower than their fuy indexed ARM rate (that is, ower than the sum of the index pus the margin). Such rates--caed discounted rates, start rates, or teaser rates--are often combined with arge initia oan fees, sometimes caed points, and with higher rates after the initia discounted rate expires. Your ender or broker may offer you a choice of oans that may incude "discount points" or a "discount fee." You may choose to pay these points or fees in return for a ower interest rate. But keep in mind that the ower interest rate may ony ast unti the first adjustment. If a ender offers you a oan with a discount rate, don't assume that means that the oan is a good one for you. You shoud carefuy consider whether you wi be abe to afford higher payments in ater years when the discount expires and the rate is adjusted. Here is an exampe of how a discounted initia rate might work. Let's assume that the ender's fuy (14 of 22)6/5/2007 9:13:25 AM

28 FRB:Consumer Handbook on Adjustabe-Rate Mortgages indexed one-year ARM rate (index rate pus margin) is currenty 6%; the monthy payment for the first year woud be 1, But your ender is offering an ARM with a discounted initia rate of 4% for the first year. With the 4% rate, your first-year's monthy payment woud be With a discounted ARM, your initia payment wi probaby remain at for ony a imited time-- and any savings during the discount period may be offset by higher payments over the remaining ife of the mortgage. If you are considering a discount ARM, be sure to compare future payments with those for a fuy indexed ARM. In fact, if you buy a home or refinance using a deepy discounted initia rate, you run the risk of payment shock, negative amortization, or prepayment penaties or conversion fees. Payment shock Payment shock may occur if your mortgage payment rises sharpy at a rate adjustment. Let's see what woud happen in the second year if the rate on your discounted 4% ARM were to rise to the 6% fuy indexed rate. As the exampe shows, even if the index rate were to stay the same, your monthy payment woud go up from to 1, in the second year. Suppose that the index rate increases 1% in one year and the ARM rate rises to 7%. Your payment in the second year woud be 1, (15 of 22)6/5/2007 9:13:25 AM

29 FRB:Consumer Handbook on Adjustabe-Rate Mortgages That's an increase of in your monthy payment. You can see what might happen if you choose an ARM because of a ow initia rate without considering whether you wi be abe to afford future payments. If you have an interest-ony ARM, payment shock can aso occur when the interest-ony period ends. Or, if you have a payment-option ARM, payment shock can happen when the oan is recast. The foowing exampe compares severa different oans over the first 7 years of their terms; the payments shown are for years 1, 6, and 7 of the mortgage, assuming you make interest-ony payments or minimum payments. The main point is that, depending on the terms and conditions of your mortgage and changes in interest rates, ARM payments can change quite a bit over the ife of the oan--so whie you coud save money in the first few years of an ARM, you coud aso face much higher payments in the future. Back to top Negative amortization--when you owe more money than you borrowed Negative amortization means that the amount you owe increases even when you make a your required (16 of 22)6/5/2007 9:13:25 AM

30 FRB:Consumer Handbook on Adjustabe-Rate Mortgages payments on time. It occurs whenever your monthy mortgage payments are not arge enough to pay a of the interest due on your mortgage--the unpaid interest is added to the principa on your mortgage, and you wi owe more than you originay borrowed. This can happen because you are making ony minimum payments on a payment-option mortgage or because your oan has a payment cap. For exampe, suppose you have a 200,000, 30-year payment-option ARM with a 2% rate for the first 3 months and a 6% rate for the remaining 9 months of the year. Your minimum payment for the year is , as shown in the graph above. However, once the 6% rate is appied to your oan baance, you are no onger covering the interest costs. If you continue to make minimum payments on this oan, your oan baance at the end of the first year of your mortgage woud be 201,118--or 1,118 more than you originay borrowed. Because payment caps imit ony the amount of payment increases, and not interest-rate increases, payments sometimes do not cover a the interest due on your oan. This means that the unpaid interest is automaticay added to your debt, and interest may be charged on that amount. You might owe the ender more ater in the oan term than you did at the beginning. A payment cap imits the increase in your monthy payment by deferring some of the interest. Eventuay, you woud have to repay the higher remaining oan baance at the interest rate then in effect. When this happens, there may be a substantia increase in your monthy payment. Some mortgages incude a cap on negative amortization. The cap typicay imits the tota amount you can owe to 110% to 125% of the origina oan amount. When you reach that point, the ender wi set the monthy payment amounts to fuy repay the oan over the remaining term. Your payment cap wi not appy, and your payments coud be substantiay higher. You may imit negative amortization by vountariy increasing your monthy payment. Be sure you know whether the ARM you are considering can have negative amortization. (17 of 22)6/5/2007 9:13:25 AM

31 FRB:Consumer Handbook on Adjustabe-Rate Mortgages Home Prices, Home Equity, and ARMs Sometimes home prices rise rapidy, aowing peope to quicky buid equity in their homes. This can make some peope think that even if the rate and payments on their ARM get too high, they can avoid those higher payments by refinancing their oan or, in the worst case, seing their home. It's important to remember that home prices do not aways go up quicky--they may increase a itte or remain the same, and sometimes they fa. If housing prices fa, your home may not be worth as much as you owe on the mortgage. Aso, you may find it difficut to refinance your oan to get a ower monthy payment or rate. Even if home prices stay the same, if your oan ets you make minimum payments (see payment-option ARMs), you may owe your ender more on your mortgage than you coud get from seing your home. Prepayment penaties and conversion If you get an ARM, you may decide ater that you don't want to risk any increases in the interest rate and payment amount. When you are considering an ARM, ask for information about any extra fees you woud have to pay if you pay off the oan eary by refinancing or seing your home, and whether you woud be abe to convert your ARM to a fixed-rate mortgage. Prepayment penaties Some ARMs, incuding interest-ony and payment-option ARMs, may require you to pay specia fees or penaties if you refinance or pay off the ARM eary (usuay within the first 3 to 5 years of the oan). Some oans have hard prepayment penaties, meaning that you wi pay an extra fee or penaty if you pay off the oan during the penaty period for any reason (because you refinance or se your home, for (18 of 22)6/5/2007 9:13:25 AM

32 FRB:Consumer Handbook on Adjustabe-Rate Mortgages exampe). Other oans have soft prepayment penaties, meaning that you wi pay an extra fee or penaty ony if you refinance the oan, but you wi not pay a penaty if you se your home. Aso, some oans may have prepayment penaties even if you make ony a partia prepayment. Prepayment penaties can be severa thousand doars. For exampe, suppose you have a 3/1 ARM with an initia rate of 6%. At the end of year 2 you decide to refinance and pay off your origina oan. At the time of refinancing, your baance is 194,936. If your oan has a prepayment penaty of 6 months' interest on the remaining baance, you woud owe about 5,850. Sometimes there is a trade-off between having a prepayment penaty and having ower origination fees or ower interest rates. The ender may be wiing to reduce or eiminate a prepayment penaty based on the amount you pay in oan fees or on the interest rate in the oan contract. If you have a hybrid ARM--such as a 2/28 or 3/27 ARM--be sure to compare the prepayment penaty period with the ARM's first adjustment period. For exampe, if you have a 2/28 ARM that has a rate and payment adjustment after the second year, but the prepayment penaty is in effect for the first 5 years of the oan, it may be costy to refinance when the first adjustment is made. Most mortgages et you make additiona principa payments with your monthy payment. In most cases, this is not considered prepayment, and there usuay is no penaty for these extra amounts. Check with your ender to make sure there is no penaty if you think you might want to make this type of additiona principa prepayment. Conversion fees Your agreement with the ender may incude a cause that ets you convert the ARM to a fixed-rate mortgage at designated times. When you convert, the new rate is generay set using a formua given in your oan documents. The interest rate or up-front fees may be somewhat higher for a convertibe ARM. Aso, a convertibe ARM may require a fee at the time of conversion. (19 of 22)6/5/2007 9:13:25 AM

33 FRB:Consumer Handbook on Adjustabe-Rate Mortgages Graduated-payment or stepped-rate oans Some fixed-rate oans start with one rate for one or two years and then change to another rate for the remaining term of the oan. Whie these are not ARMs, your payment wi go up according to the terms of your contract. Tak with your ender or broker and read the information provided to you to make sure you understand when and by how much the payment wi change. Back to top Where to Get Information Discosures from enders You shoud receive information in writing about each ARM program you are interested in before you have paid a nonrefundabe fee. It is important that you read this information and ask the ender or broker about anything you don't understand--index rates, margins, caps, and other ARM features such as negative amortization. After you have appied for a oan, you wi get more information from the ender about your oan, incuding the APR, a payment schedue, and whether the oan has a prepayment penaty. The APR is the cost of your credit as a yeary rate. It takes into account interest, points paid on the oan, any fees paid to the ender for making the oan, and any mortgage insurance premiums you may have to pay. You can compare APRs on simiar ARMs (for exampe, compare APRs on a 5/1 and a 3/1 ARM) to determine which oan wi cost you ess in the ong term, but you shoud keep in mind that because the interest rate for an ARM can change, APRs on ARMs cannot be compared directy to APRs for fixed-rate mortgages. You may want to tak with financia advisers, housing counseors, and other trusted advisers. Contact a oca housing counseing agency, ca the U.S. Department of Housing and Urban Deveopment to-free at , or visit onine to find a center near you. Newspapers and the Internet When buying a home or refinancing your existing mortgage, remember to shop around. Compare costs (20 of 22)6/5/2007 9:13:25 AM

34 FRB:Consumer Handbook on Adjustabe-Rate Mortgages and terms, and negotiate for the best dea. Your oca newspaper and the Internet are good paces to start shopping for a oan. You can usuay find information on interest rates and points for severa enders. Since rates and points can change daiy, you' want to check information sources often when shopping for a home oan. The Mortgage Shopping Worksheet may aso hep you. Take it with you when you speak to each ender or broker and write down the information you obtain. Don't be afraid to make enders and brokers compete with each other for your business by etting them know that you are shopping for the best dea. Advertisements Any initia information you receive about mortgages probaby wi come from advertisements or mai soicitations from buiders, rea estate brokers, mortgage brokers, and enders. Athough this information can be hepfu, keep in mind that these are marketing materias--the ads and maiings are designed to make the mortgage ook as attractive as possibe. These ads may pay up ow initia interest rates and monthy payments, without emphasizing that those rates and payments coud increase substantiay ater. So, get a the facts. Any ad for an ARM that shows an initia interest rate shoud aso show how ong the rate is in effect and the APR on the oan. If the APR is much higher than the initia rate, your payments may increase a ot after the introductory period, even if interest rates stay the same. Choosing a mortgage may be the most important financia decision you wi make. You are entited to have a the information you need to make the right decision. Don't hesitate to ask questions about ARM features when you tak to enders, mortgage brokers, rea estate agents, seers, and your attorney, and keep asking unti you get cear and compete answers. Back to top The information on this site is aso avaiabe in the brochure "Consumer Handbook on Adjustabe-Rate Mortgages." Singe or mutipe copies of the brochure are avaiabe without charge. Order the brochure by teephone, mai, or fax. Order onine. (21 of 22)6/5/2007 9:13:25 AM

35 FRB:Consumer Handbook on Adjustabe-Rate Mortgages Gossary Mortgage Shopping Worksheet For More Information Home Consumer information Pubications Brochures Accessibiity Contact us Last update: May 17, (22 of 22)6/5/2007 9:13:25 AM

36 Shopping for your home oan Settement cost booket January 2014

37 This booket was initiay prepared by the U.S. Department of Housing and Urban Deveopment. The Consumer Financia Protection Bureau (CFPB) has made technica updates to the booket to refect new mortgage rues under Tite XIV of the Dodd-Frank Wa Street Reform and Consumer Protection Act (Dodd-Frank Act). A arger update of this booket is panned in the future to refect the integrated mortgage discosures under the Truth in Lending Act and the Rea Estate Settement Procedures Act and other changes under the Dodd-Frank Act, and to aign with other CFPB resources and toos for consumers as part of the CFPB s broader mission to educate consumers. Consumers are encouraged to visit the CFPB s website at consumerfinance.gov/owning-a-home to access interactive toos and resources for mortgage shoppers, which are expected to be avaiabe beginning in SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

38 Tabe of contents Tabe of contents Introduction Before you buy Are you ready to be a homeowner? Determining what you can afford Shopping for a house Roe of the rea estate agent or broker Roe of an attorney Terms of the saes agreement Affiiated businesses Buiders Shopping for a oan Loan originator Types of oans and programs Taxes and insurance Good Faith Estimate (GFE) Your GFE step-by-step After you choose the best oan for you New home purchases SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

39 6.4 Changed circumstances Shopping for other settement services Tite services and settement agent Survey Homeowner s insurance Your settement and HUD Settement HUD-1 Settement Statement Your oan after settement Servicing and escrow discosure statements Biing information Servicing information and errors Consumer protections Avoiding forecosure Home equity and refinances Home equity oan/ine of credit Is a home equity oan/ine of credit right for you? Refinancing: shoud you consider refinancing? Additiona protections No discrimination Prompt action/notification of action taken Statement of reasons for denia Obtaining your credit report Obtaining your appraisa HOEPA Appendix A: SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

40 Defined terms Appendix B: More information Appendix C: Contact information Appendix D: Types of mortgage oan products Appendix E: Worksheet: Determining what you can afford Appendix F: HUD-1 Settement Statement Appendix G: The do ist/the don t ist SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

41 1. Introduction The Rea Estate Settement Procedures Act (RESPA) requires enders and mortgage brokers to give you this booket within three days of appying for a mortgage oan. RESPA is a federa aw that heps protect consumers from unfair practices by settement service providers during the home buying and oan process. Buying a home is an important financia decision that shoud be considered carefuy. This booket wi hep you become famiiar with the various stages of the home-buying process, incuding deciding whether you are ready to buy a home, and providing factors to consider in determining how much you can afford to spend. You wi earn about the saes agreement, how to use a Good Faith Estimate to shop for the best oan for you, required settement services to cose your oan, and the HUD-1 Settement Statement that you wi receive at cosing. This booket wi hep you become famiiar with how interest rates, points, baoon payments, and prepayment penaties can affect your monthy mortgage payments. In addition, there is important information about your oan after settement, incuding how to resove oan-servicing probems with your ender, and steps you can take to avoid forecosure. After you have purchased your home, this booket wi hep you identify issues to consider before getting a home equity oan or refinancing your mortgage. Finay, if you have any questions after reading this booket or are having a probem in the home-buying process or with your mortgage, you can contact the Consumer Financia Protection Bureau (CFPB). See the More information and Contact information appendices for contact information for the CFPB and other federa agencies, and information about the CFPB s compaint process. The appendices aso incude a gossary of defined terms. Using this booket as your guide wi hep you avoid the pitfas and hep you achieve the joys of home ownership. 6 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

42 2. Before you buy 2.1 Are you ready to be a homeowner? A home may be the most expensive purchase you wi ever make. Before you make a commitment, make sure you are ready. Avoid the pressure to buy a home you cannot afford. Here are some things to consider: Are you ready to be a homeowner? It is critica that you consider whether you have saved enough money to make a down payment in addition to being abe to pay your other debts. You must have job stabiity and a steady income. How ong do you pan on iving in your home? Rea estate is not aways an investment that grows in vaue. No one can predict what wi happen with your oca housing market. If you pan to se your home in the next few years, reaize that the property may not increase substantiay in vaue or may actuay ose vaue. You may utimatey owe more to pay off your mortgage than your home wi be worth. What is your estimated monthy payment for the home? In addition to the monthy payment for principa and interest, you wi have to pay for taxes and insurance and possiby homeowner association dues. If your down payment is ess than 20 percent, your ender may require that you pay the added expense for mortgage insurance. What are the other costs of owning a home? Be reaistic about the costs of owning a home ike heating and cooing and other utiities. You wi generay need to budget for repairs and routine maintenance of your home, especiay if you buy an oder home. What can you afford? Be confident that you can make the monthy payments. Have a financia pan and make a budget. Do you have a steady source of reiabe income to pay your mortgage shoud your interest rate or the cost of taxes and insurance increase in the future? Consider how many ong-term debts you have such as car or student oans, as we as credit card bis. 7 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

43 Have you taked with a housing counseing agency? Housing counseors can be very hepfu, especiay for first-time home buyers. The U.S. Department of Housing and Urban Deveopment (HUD) supports housing counseing agencies throughout the country that can provide free or ow-cost advice. You can search onine for HUD-approved housing counseing agencies in your area at the CFPB s website at consumerfinance.gov/find-a-housingcounseor or by caing HUD s interactive to-free number at After answering the questions above, have you determined that buying a house is right for you? If so, congratuations! Let s start shopping for a house and a oan. Purchasing timeine Determine what you can afford Find a house and negotiate contract terms Choose best oan for you Have house inspected Loan is approved Go to settement Find a rea estate agent Shop for your oan: compare mutipe GFEs Originator processes oan Shop for other service providers Get insurances and do a fina wak through Move in 8 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

44 3. Determining what you can afford To determine how much you can afford, you first need to know your monthy income. Second, you wi need to cacuate your monthy expenses which may incude credit card bis, car payments, insurance premiums and a other debts. There is a worksheet in Appendix E ( Determining What You Can Afford Worksheet ) that wi hep you cacuate your income and expenses to hep determine what you can afford. Consider taking with a financia professiona such as a housing counseor (see onine search too isted above) to hep you determine what you can afford. Keeping your payments affordabe is the best way to avoid forecosure or other financia difficuties. Whie mortgage enders wi te you how much they are wiing to end you (which is the oan amount you quaify for), and are required to consider your abiity to repay the oan before they make the oan, you probaby know your finances better than anyone, so you shoud determine how much you are wiing and abe to pay every month for your home. 9 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

45 4. Shopping for a house 4.1 Roe of the rea estate agent or broker Frequenty, the first person you consut about buying a home is a rea estate agent or broker. Athough agents and brokers provide hepfu advice, they may egay be representing the interests of the seer and not yours. It is your responsibiity to search for an agent who wi represent your interests in the rea estate transaction. If you want someone to represent ony your interests, consider hiring an excusive buyer s agent, who wi be working for you. Even if the rea estate agent represents the seer, state aws usuay require that you are treated fairy. If you have any questions concerning the behavior of an agent or broker, you shoud contact your state s Rea Estate Commission or icensing department. Sometimes, the rea estate broker wi offer to hep you obtain a mortgage oan. He or she may aso recommend that you dea with a particuar ender, mortgage broker, tite company, attorney, or settement/cosing agent. You are not required to foow the rea estate broker s recommendation, and you shoud compare the costs and services offered by other providers before making a decision. 4.2 Roe of an attorney Before you sign a saes agreement, you might consider asking an attorney to review it and te you if it protects your interests. If you have aready signed your saes agreement, you might sti consider having an attorney review it. When choosing an attorney, you shoud shop around and ask what services wi be performed and whether the attorney is experienced in representing home buyers. You may aso wish to ask the attorney whether the attorney wi represent anyone other than you in the transaction. In some areas, an attorney wi act as a settement agent to hande your settement. 10 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

46 4.3 Terms of the saes agreement Before you sign a saes agreement, here are some important points to consider. Whie the rea estate broker wi probaby give you a preprinted form of the saes agreement, many terms are negotiabe so you may make changes or additions to the agreement. The seer, however, must agree to every change you make in order for such changes to be incorporated into the saes agreement. For most home buyers, the saes price is the most important term. Make sure you know what the saes price incudes, such as appiances. Here are other important terms of the saes agreement: Mortgage cause The mortgage cause wi state whether or not your deposit wi be refunded if the sae is canceed because you are unabe to get a mortgage oan. Your agreement coud aow the purchase to be canceed if you cannot obtain mortgage financing at or beow a specific interest rate or through a specific oan program Settement costs You can negotiate which settement costs you wi pay and which wi be paid by the seer. The seer may contribute a ump sum amount or may agree to pay for specific items on your behaf Inspections Most buyers prefer to pay for the foowing inspections so that the inspector is working for them, not the seer. You may want to incude in your saes agreement the abiity to cance the agreement or renegotiate the contract for a ower saes price or for the needed repairs if you are not satisfied with the inspection resuts. Home inspection: You shoud have the home inspected. An inspection shoud determine the condition of the pumbing, heating, cooing, and eectrica systems. The structure shoud aso be examined to assure it is sound and to determine the condition of the roof, siding, windows, and doors. The ot shoud be graded away from the house so that water does not drain toward the house and into the basement. You shoud be present during the inspection to ask any questions. Pests: Your ender may require a certificate from a quaified inspector stating that the home is free from termites and other pests and pest damage. Even if your ender does not require a 11 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

47 pest inspection, you may want to obtain a pest inspection to ensure the property does not have termites or other pests. Lead-based paint hazards: If you buy a home buit before 1978, you have certain rights concerning ead-based paint and ead poisoning hazards. The seer or saes agent must give you the EPA pamphet Protect Your Famiy From Lead in Your Home (or other EPAapproved ead hazard information). The seer must aso discose any known ead-based paint hazards in the property through a Lead Warning Statement and give you any reevant records or reports. Other environmenta concerns: Your city or state may require seers to discose known environmenta hazards such as eaking underground oi tanks, the presence of radon or asbestos, ead water pipes, and other such hazards. You may want to determine the environmenta condition of the home for your own safety. You coud aso be financiay iabe for the cean-up of any environmenta hazards Sharing of expenses You need to negotiate with the seer about how expenses reated to the property such as taxes, water and sewer charges, condominium fees, and utiity bis, are to be divided on the date of settement. Uness you agree otherwise, you shoud ony be responsibe for the portion of these expenses owed after the date of sae. 4.4 Affiiated businesses When you are shopping for your home and your mortgage, a settement service provider may refer you to its affiiated business. Affiiated business arrangements exist when severa businesses are owned or controed by a common corporate parent. When a ender, rea estate broker, buider, or others refer you to an affiiated settement service provider, RESPA requires that the referring party give you an Affiiated Business Arrangement Discosure. Except under certain circumstances, you are generay not required to use the affiiate and are free to shop for other service providers. You shoud shop around to determine that you are receiving the best service and price. 12 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

48 4.5 Buiders If you are buying a newy constructed home, a buider may offer you an incentive or dea if you seect its affiiated mortgage company or other settement service business. You shoud shop and compare interest rates and other settement charges before entering a contractua agreement to use these affiiated companies. 13 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

49 5. Shopping for a oan Your choice of mortgage ender or broker, as we as type of oan itsef, wi infuence your settement costs and your monthy mortgage payment. You may find a isting of oca enders and mortgage brokers in the yeow pages and a isting of rates in your oca newspaper. You may aso wish to search the internet for enders and brokers and their advertised rates. You can ask your famiy and friends about oan originators they have used and recommend. 5.1 Loan originator A oan originator is a ender or a mortgage broker. Mortgage brokers. Some companies, known as mortgage brokers, may not make oans themseves but wi offer to find you a mortgage ender wiing to make you a oan. Mortgage brokers typicay are paid through fees charged to you at settement or through a higher interest rate that reimburses the ender for compensating the broker. Mortgage brokers are not required to find the best dea for you uness they have contracted with you to act as your agent or representative, or they have a duty to do so under state aw. Lenders. A ender typicay makes oans to borrowers directy. A ender receives payment through fees charged to you at settement, payment from interest when you make your monthy mortgage payments, and payments if they se your oan or the servicing of your oan after settement. Note: Whether you appy for a oan with a ender or mortgage broker, you shoud receive Good Faith Estimates (expained beow) of settement costs from mutipe oan originators to make certain you get the best oan product at the owest interest rate and owest settement costs. 14 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

50 5.2 Types of oans and programs Shopping for your oan is probaby the most important step in your home-buying process. Mortgage brokers and enders have a wide variety of mortgage products. The type of oan product and your interest rate wi not ony infuence your tota settement costs but wi determine the amount of your monthy mortgage payment Government programs You may be eigibe for a oan insured by the Federa Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA), or offered by the Rura Housing Service (RHS). These programs usuay require a smaer down payment. Ask your ender or mortgage broker about these programs. You shoud shop and compare quotes from different oan originators because each may offer different rates and oan terms. If you are a first time home buyer, ask your rea estate agent/broker and oan originator about the avaiabiity of oca or state programs such as reductions in transfer taxes, specia income tax deductions, or state homestead exemption discounts Types of mortgages Two of the most common types of mortgage oans are fixed-rate mortgages and adjustabe-rate mortgages. The interest rate on a fixed-rate mortgage wi remain the same for the entire ife of your oan whie the interest rate on an adjustabe-rate mortgage (ARM) may adjust at reguar intervas and may be tied to an economic index, such as a rate for Treasury securities. When the interest rate on an ARM adjusts it may cause your payment to increase. Some adjustabe-rate mortgages aow the borrower to pay either the interest ony or ess than the interest ony. In both options, none of the mortgage payment is appied towards the oan baance (principa). In a ess than interest ony option, the unpaid interest is added to your oan baance and you can owe more than the amount you initiay borrowed, even if you make a your payments on time. This is caed negative amortization. If you are a first-time borrower and your mortgage coud resut in negative amortization, your ender is required to make sure you get homeownership counseing before you borrow the money. When the oan baance increases to the maximum amount the oan is recast and your oan payment may doube or even tripe. When faced with payment shock, you may discover too ate that the oan payments no onger fit within your budget and that the oan is difficut to refinance. You may then be in danger of osing your home. 15 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

51 Warning: Choosing an ARM product coud affect your abiity to pay your mortgage in the future, resuting in oan defaut or forecosure. You need to become famiiar with the features of ARM products to find the one that best fits your needs. If you decide to obtain an ARM, consider obtaining additiona information. Additiona information may be found by contacting the CFPB. Contact information is given in the appendices to this booket. Aso, a pubication on adjustaberate mortgages is avaiabe from the CFPB fies.consumerfinance.gov/f/201204_cfpb_ ARMsbrochure.pdf. 5.3 Taxes and insurance In addition to the principa and interest portion of your mortgage payment, you wi have to pay property taxes and insurance to protect the property in the event of disaster such as a fire or food. Based on your down payment, you may aso have to pay mortgage insurance. Your ender may require an escrow or impound account to pay these items with your monthy mortgage payment. If an escrow account is not required, you are responsibe for making these payments when they become due and wi need to budget for them in addition to your monthy mortgage payment. Mortgage insurance may be required by your ender if your down payment is ess than 20 percent of the purchase price. Mortgage insurance protects the ender if you defaut on your oan. You may be abe to cance mortgage insurance in the future based on certain criteria, such as paying down your oan baance to a certain amount. Before you commit to paying for mortgage insurance, find out the specific requirements for canceation. Mortgage insurance shoud not be confused with mortgage ife, credit ife, or disabiity insurance. These products are designed to pay off a mortgage in the event of a borrower s death or disabiity. Homeowner s (hazard) insurance protects your property in the event of a oss such as fire. Many enders require that you get a homeowner s poicy before settement. Food insurance wi be required if the house is in a food hazard area. After your oan is setted, if a change in food insurance maps brings your home within a food hazard area, your ender or servicer may require you to buy food insurance at that time. 16 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

52 6. Good Faith Estimate (GFE) The GFE is a three-page form designed to encourage you to shop for a mortgage oan and settement services so you can determine which mortgage is best for you. It shows the oan terms and the settement charges you wi pay if you decide to go forward with the oan process and are approved for the oan. It expains which charges can change before your settement and which charges must remain the same. It contains a shopping chart aowing you to compare mutipe mortgage oans and settement costs, making it easier for you to shop for the best oan. The GFE may be provided by a mortgage broker or the ender. Unti they give you a GFE, oan originators are ony permitted to charge you for the cost of a credit report. They are not permitted to charge you a fee for an appraisa, inspection, or other simiar settement service prior to giving you the GFE. In the oan appication process, the oan originator wi need your name, Socia Security number, gross monthy income, property address, estimate of the vaue of the property, and the amount of the mortgage oan you want to determine the GFE. Your Socia Security number is used to obtain a credit report showing your credit history, incuding past and present debts and the timeiness of repayment. 6.1 Your GFE step-by-step Page 1 of the GFE Now et s go through the GFE step-by-step. The top of page 1 of the GFE shows the property address, your name and contact information, and your oan originator s contact information. 17 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

53 Important Dates The Important Dates section of the GFE incudes key dates of which you shoud be aware. Line 1 discoses the date and time the interest rate offer is good through. Line 2 discoses the date A Other Settement Charges is good through. This date must be open for at east 10 business days from the date the GFE was issued to aow you to shop for the best oan for you. Line 3 discoses the interest rate ock time period, such as 30, 45, or 60 days, that the GFE was based on. It does not mean that your interest rate is ocked. Line 4 discoses the number of days prior to going to settement that you must ock your interest rate. Note: Locking in your rate and points at the time of appication or during the processing of your oan wi keep the interest rate and points from changing unti the rate ock period expires. 18 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

54 Summary of Your Loan The Summary of Your Loan section discoses your oan amount, oan term, the initia interest rate and the principa, interest and mortgage insurance portion of your monthy mortgage payment. It aso informs you if your interest rate can increase, if your oan baance can rise, whether your mortgage payment can rise, and if there is a prepayment penaty or baoon payment. In the exampe above, the oan amount is 200,000 which wi be paid over 30 years. The initia interest rate is 5 percent and the initia monthy mortgage payment is 1,173 which incudes mortgage insurance, but does not incude any amounts to pay for property taxes and homeowner s insurances if required by the ender. In our exampe, the oan has an adjustabe interest rate. Since the interest rate can rise, the yes box was checked, and the oan originator discosed that the initia interest rate of 5 percent coud rise as high as 10 percent. The first time your interest rate coud rise is six months after settement which coud increase your payments to 1,290. Over the ife of your oan your monthy payments coud increase from 1,173 to 1,842. This exampe does not contain a baoon payment or a prepayment penaty. Note: A prepayment penaty is a charge that is assessed if you pay off the oan within a specified time period, such as three years. A baoon payment is due on a mortgage that usuay offers a ow monthy payment for an initia period of time. After that period of time eapses, the baance must be paid by the borrower, or the amount must be refinanced. You shoud think carefuy before agreeing to these kinds of mortgage oans. If you are unabe to refinance or pay the baance of the oan, you coud put your home at risk. 19 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

55 Escrow Account Information The GFE aso incudes a separate section referred to as Escrow Account Information, which indicates whether or not an escrow account is required. This account hods funds needed to pay property taxes, homeowner s insurance, food insurance (if required by your ender), or other property-reated charges. If the GFE specifies that you wi have an escrow account, you wi probaby have to pay an initia amount at settement to start the account and an additiona amount with each month s reguar payment. If you wish to pay your property taxes and insurance directy, some enders wi give you a higher interest rate or charge you a fee. If your ender does not require an escrow account, you must pay these items directy when they are due. Summary of Your Settement Charges The fina section on page 1 of the GFE contains the adjusted origination charges and the tota estimated charges for other settement services, which are detaied on page 2. You shoud compare the Tota Estimated Settement Charges on severa GFEs Page 2 of the GFE The price of a home mortgage oan is stated in terms of an interest rate and settement costs. Often, you can pay ower tota settement costs in exchange for a higher interest rate and vice versa. Ask your oan originator about different interest rates and settement costs options. 20 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

56 Your Adjusted Origination Charges, Bock A Bock 1, Our origination charge contains the ender s and the mortgage broker s charges and point(s) for originating your oan. Bock 2, Your credit or charge point(s) for the specific interest rate chosen. If box 1 is checked, the credit or charge for the interest rate is part of the origination charge shown in Bock 1. If box 2 is checked, you wi pay a higher interest rate and receive a credit to reduce your adjusted origination charge and other settement charges. If box 3 is checked, you wi be paying point(s) to reduce your interest rate and, therefore, wi pay higher adjusted origination charges. Note: A point is equa to one percent of your oan amount. After adding or subtracting Bock 2 from Bock 1, Your Adjusted Origination Charge is shown in Bock A. In the exampe shown, the origination charge is 6,750. No points were paid to reduce the interest rate. Instead, because of the interest rate chosen, the offer contains a 3,000 credit that reduces the adjusted origination charge to 3, SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

57 Your Charges for A Other Settement Services, Bocks 3 through 11 In addition to the charges to originate your oan, there are other charges for services that wi be required to get your mortgage. For some of the services, the oan originator wi choose the company that performs the service (Bock 3). The oan originator usuay permits you to seect the settement service provider for Tite services and ender s tite insurance (Bock 4). Owner s tite insurance is aso discosed (Bock 5). Other required services that you may shop for are incuded in Required services that you can shop for (Bock 6) Bock 3 contains charges for required services for which the oan originator seects the settement service provider. These are not shoppabe services and often incude items such as the property appraisa, credit report, food certification, tax service and any required mortgage insurance. Bock 4 contains the charge for tite services, the ender s tite insurance poicy and the services of a tite, settement or escrow agent to conduct your settement. Bock 5 contains the charge for an owner s tite insurance poicy that protects your interests. Note: Under RESPA, the seer may not require you, as a condition of the sae, to purchase tite insurance from any particuar tite company. Bock 6 contains charges for required services for which you may shop for the provider. Some of these items may incude a survey or pest inspection. 22 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

58 Bock 7 contains charges by governmenta entities to record the deed and documents reated to the oan. Bock 8 contains charges by state and oca governments for taxes reated to the mortgage and transferring tite to the property. Bock 9 contains the initia amount you wi pay at settement to start the escrow account, if required by the ender. Bock 10 contains the charge for the daiy interest on the oan from the day of settement to the first day of the foowing month. Bock 11 contains the annua charge for any insurance the ender requires to protect the property such as homeowner s insurance and food insurance. Tota Estimated Settement Charges Your charges for A Other Settement Services, Bocks 3 through 11, are totaed in Bock B. Bocks A and B are added together resuting in the Tota Estimated Settement Charges associated with getting the oan. These Bocks are carried forward to the bottom of page 1 of the GFE. 23 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

59 6.1.3 Page 3 of the GFE Page 3 of the GFE contains important instructions and information that wi hep you shop for the best oan for you. Understanding which charges can change at settement There are three different categories of charges that you wi pay at cosing: charges that cannot increase at settement; charges that cannot increase in tota more than 10 percent; and charges that can increase at settement. You can use this as a guide to understand which charges can or cannot change. Compare your GFE to the actua charges isted on the HUD-1 Settement Statement to ensure that your ender is not charging you more than permitted. Written ist of settement service providers A written ist wi be given to you with your GFE that incudes a settement services that you are required to have and that you are aowed to shop for. You may seect a provider from this ist or you can choose your own quaified provider. If you choose a name from the written ist provided, the fina charge for that service may not be more than 10 percent higher than the cost shown on the GFE. If you seect your own service provider, the 10 percent toerance wi not appy. Even though you may find a better dea by seecting your own provider, you shoud choose the provider carefuy as those charges coud increase at settement. If your oan originator fais to provide a ist of settement service providers, the 10 percent toerance automaticay appies even if you do not seect a service provider known to the ender. 24 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

60 Using the tradeoff tabe The tradeoff tabe on page 3 wi hep you understand how your oan payments can change if you pay more settement charges and receive a ower interest rate or if you pay ower settement charges and receive a higher interest rate. The oan originator must compete the first coumn with information contained in the GFE. If the oan originator has the same oan product avaiabe with a higher or ower interest rate, the oan originator may choose to compete the remaining coumns. If the second and third coumns are not fied in, ask your oan originator if they have the same oan product with different interest rates. 25 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

61 Using the shopping chart You can use this chart to compare simiar oans offered by different oan originators. Fi in each coumn with the information shown in the Summary of your oan section from the first page of a the GFEs you receive. Compare each offer and seect the best oan for you. 6.2 After you choose the best oan for you After comparing severa GFEs, seect the best oan for you and notify the oan originator that you woud ike to proceed with the oan. Keep your Good Faith Estimate so you can compare it with the fina settement costs stated on your HUD-1 Settement Statement. Ask the ender and settement agent if there are any changes in fees between your GFE and your HUD-1 Settement Statement. Some charges cannot be increased, and your ender must reimburse you if those charges were iegay increased. 6.3 New home purchases If you are purchasing a new home that is being buit or has not been buit yet, your GFE coud change. If the GFE can change, the oan originator must notify you that the GFE may be revised 26 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

62 at any time up to 60 days before settement. If you get a revised GFE, ook at it to determine if the oan and settement costs it discoses are the best for you. 6.4 Changed circumstances If there are changes invoving your credit, the oan amount, the property vaue, or other information that was reied on in issuing the origina GFE, a revised GFE may be issued. Ony the charges affected by the changed circumstance may be revised. 27 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

63 7. Shopping for other settement services There are other settement services that the ender wi require for your oan. You may be abe to shop for these services or you may choose providers identified on the written ist you receive from the oan originator, but this may affect your fina charges, as discussed above (see Written ist of settement service providers above). Some of these other settement services are described beow. 7.1 Tite services and settement agent When you purchase your home, you receive tite or proof of ownership to the home. Certain tite services wi be required by your ender to protect against iens or caims on the property. Tite services incude the tite search, examination of the tite, preparation of a commitment to insure, conducting the settement, and a administration and processing services that are invoved within these services. Many enders require a ender s tite insurance poicy to protect them against oss resuting from caims by others against your new home. A ender s tite insurance poicy protects the ender; it does not protect you. If a tite caim occurs, it can be financiay devastating to an owner who is uninsured. If you want to protect yoursef from caims by others against your new home, you wi aso need an owner's tite insurance poicy. To save money on tite insurance, compare rates among various tite insurance companies. If you are buying a newy constructed home, make certain your tite insurance covers caims by contractors. These caims are known as mechanics iens in some parts of the country. In many states, tite insurance premium rates are fied with the state and may not be negotiabe, but 28 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

64 other tite service reated charges may be. Be sure to ask your tite agent about any avaiabe discounts such as a reissue rate or a simutaneous issue discount. Tite services aso incude the services of a settement agent. Settement practices vary from ocaity to ocaity, and even within the same county or city. Depending on the ocaity, settements may be conducted by enders, tite insurance companies, escrow companies or attorneys for the buyer or seer. In some parts of the country, a settement may be conducted by an escrow agent. Unike other types of settement, the parties may not meet around a tabe to sign documents. Ask how your settement wi be handed. 7.2 Survey Lenders or tite insurance companies may require a survey to discose the ocation of the property. The survey is a drawing of the property showing the ocation of the house and other improvements on the property. You may be abe to avoid the cost of a new survey if you determine the company that previousy surveyed the property and request an update. Check with your ender and tite insurance company on whether an updated survey is acceptabe. 7.3 Homeowner s insurance As a condition to sette, most enders wi require that you procure homeowner s insurance, food insurance, or other hazard insurance to protect the property from oss. Don t forget to shop for the best rates. 29 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

65 8. Your settement and HUD-1 You have determined what you can afford, shopped for the best oan for you, and found the right house. After a the hard work, it is time to go to settement, but don t forget to bring your GFE to compare with the charges isted on the HUD-1 Settement Statement (HUD-1). It is a good idea to review your HUD-1 before your settement. Let your settement agent and ender know that you want to receive a competed HUD-1 at east one day prior to your settement. 8.1 Settement Your settement may be conducted by your ender or your tite insurance company, an escrow company, your attorney or the seer s attorney. Regardess of who performs the settement, there wi be many important documents that you wi need to sign. Make sure you carefuy read and understand a the documents before you sign them. Do not be afraid to ask the ender any questions you have about your oan documents. 8.2 HUD-1 Settement Statement The HUD-1 is a form that ists a charges and credits to the borrower and seer in a transaction. You have the right under RESPA to inspect the HUD-1 before settement occurs. When you receive a copy of the HUD-1, compare it to your GFE. Ask the ender questions about any changes in fees between your GFE and the HUD-1. Your ender must reimburse you if a cosing cost toerance was vioated. 30 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

66 8.2.1 Page 1 of the HUD Series, Summary of Borrower s Transactions The first page of the HUD-1 summarizes a of the charges and credits to the buyer and seer. Line 101 is the contract saes price. Line 103 is the tota settement charges from page 2. Lines 106 to 112 ists items you are reimbursing the seer for that were aready paid for by the seer, such as property taxes or homeowner association dues. Line 120 is the tota of the 100 series section and is the tota amount you owe. Lines 200 to 209 contain credits for items paid by you, such as the earnest money deposit and other credits from the seer and other parties. Lines 210 to 219 are credits from the seer for items owed by the seer that are due after settement. Line 220 is the tota of a credits from Lines 201 to 219. Subtract the amount on Line 220 from the amount on Line 120. Line 303 is the amount you must bring to settement or the amount you wi receive. 31 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

67 8.2.2 Page 2 of the HUD Series, Tota Rea Estate Broker Fees This section of the settement statement shows the commissions paid to the rea estate agents. There are no corresponding ines on the GFE because the ender does not require this service before you get your oan. 800 Series, Items Payabe in Connection with Loan Line 801, Our origination charge, ists the ender s and mortgage broker s charge for getting you the oan and references GFE Bock 1. In this exampe, Line 801 designates an origination point of 2,000 for possibe tax deductibiity. Line 802 ists either the charge for the interest rate (points) or a credit and references GFE Bock 2. Line 803 ists Your adjusted origination charges. This amount is the sum of Lines 801 and 802 and references Bock A on the GFE. Line 804 is the charge for the appraisa report prepared by an appraiser. 32 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

68 Line 805 is the fee for a credit report showing your credit history. Line 806 is the fee paid to a tax service provider for information on the rea estate property taxes. Line 807 is the fee paid to the service providing information on whether the property is in a food zone. Lines 804, 805, 806 and 807 usuay reference GFE Bock 3. Line 808 and any additiona ines are used to ist other third party services required by your ender, incuding FHA or VA fees. 900 Series, Items Required by Lender to be Paid in Advance These are charges that the ender requires to be prepaid at settement. Line 901 ists the daiy interest charges coected for the period between the date of your settement and the first day of the next month. This charge is discosed in Bock 10 of your GFE. In this exampe, the oan cosed on 1/31/10, and the interest on the GFE was cacuated with a 1/31/10 cosing date so the charges are the same on both. This amount on Line 901 may differ from the amount on the GFE if the settement date changes. Line 902 ists the charge for any up-front mortgage insurance premium payment due at settement. This is one of the charges discosed in GFE Bock 3 of your GFE. In this exampe, there is no payment due. Line 903 is the charge for the homeowner s insurance poicy and is one of the charges discosed in Bock 11 of your GFE. In the exampe, the homeowner s insurance was paid prior to the day of settement so the charge is isted as P.O.C. by borrower. P.O.C. stands for Paid Outside of Cosing. You typicay have to bring a pre-paid insurance poicy to your settement. 33 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

69 1000 Series, Reserves Deposited with Lender This series of the HUD-1 ists the amounts coected by the ender to be paced in your escrow account for future payments of items such as homeowner s insurance, mortgage insurance and property taxes. Line 1007 is an adjustment to make sure enders are ony coecting the maximum amount aowed by aw. In this exampe, even though the first year s homeowner s insurance premium has aready been paid, the ender has started escrowing money to pay the next bi when it becomes due Series, Tite Charges Line 1101 ists the charge for a tite services and the ender s tite insurance poicy. Tite services incudes any service invoved with providing tite insurance, such as tite examination, preparing the tite commitment, cearing the tite to the property, preparing and issuing the tite poicies and conducting the settement. These charges correspond to GFE Bock 4. Line 1102 is the amount of the settement or cosing fee if performed by a company different from the one providing tite insurance. This charge is part of the charge isted in Line SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

70 Line 1103 ists the charge for the owner s tite insurance poicy, if you decided to buy one. It corresponds to Bock 5 of the GFE. Line 1104 ists the charge for the ender s tite insurance poicy which is part of the charge isted in Line Line 1105 is the ender s tite poicy imit. It often is ower than the vaue of the property because it ony covers the amount of your ender s ien on your property. Line 1106 ists the owner s tite poicy imit. The iabiity imit of the owner's poicy is typicay the purchase price paid for the property. Line 1107 ists the portion of the tite insurance premiums retained by the tite insurance agent. Line 1108 ists the portion of the tite insurance premiums retained by the underwriter Series, Government Recording and Transfer Charges Government recording charges isted in the 1200 series on the HUD-1 are charges paid to state and oca governmenta agencies to record important documents such as the deed and mortgage or deed of trust and transfer taxes to egay transfer property. Line 1201 ists a government recording charges and corresponds to Bock 7 of your GFE. This represents the cumuative amount the borrower is paying for government recording charges. Line 1202 itemizes specific recording charges for the deed, the mortgage, and any reeases of prior iens against your property shown in Line When the seer pays for an item, such as a reease, the charge is isted in the seer s coumn. In this exampe, the borrower is paying of the recording charges, and the seer is paying The tota paid for the government recording charges was (borrower / seer 15.00). 35 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

71 Line 1203 ists the charge for transfer taxes. Transfer taxes are charged by state or oca government to transfer rea property or pace a new ien (mortgage or deed of trust) on a property. This charge is isted in Bock 8 of your GFE. Lines 1204 and 1205 itemize the charges for transfer taxes isted in Line Line 1206 can be used to ist additiona items reated to recording or transfer charges. In our exampe, the government recording charge that appeared in Bock 7 of the GFE was which is iustrated in the coumn on Line 1201 on the HUD-1. Series 1300, Additiona Settement Charges Line 1301 is the tota of ender required services for which you chose the provider (other than tite services). These services are itemized in the ines beow These charges are isted in Bock 6 of your GFE. In addition to services the oan originator required there may be additiona services that you chose. In our exampe, Line 1304 ists a homeowner s warranty to provide protection for your home s mechanica systems and appiances. A charge for a pest inspection or survey wi appear as a ine item in the 1300 series of the HUD-1, if the borrower eected to obtain an inspection or survey that was not a condition of the oan or required by the ender. Line 1400 is the tota of a charges isted in page 2 on the HUD-1 for the seer and you, the buyer. These totas are aso isted on page 1 of the HUD-1. Your charges appear in Section J, Summary of the Borrower s Transaction, on Line 103. The seer s charges are isted in Section J, Summary of Seer s Transaction, on Line SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

72 8.2.3 Page 3 of the HUD-1 The third page of the HUD-1 is made up of two sections: the Comparison Chart and the Loan Terms. The Comparison Chart wi hep you compare the charges discosed on your GFE and the actua charges isted on page 2 of the HUD-1. The Loan Terms section can assure you that the oan you appied for is the oan you received at settement. This section shoud compare with the Summary of Your Loan on page 1 of the GFE. Comparison Chart There are three categories in the Comparison Chart: charges that coud not increase at settement, charges that in tota coud not increase more than 10 percent and charges that coud change. Compare the charges isted in the GFE coumn with the charges in the HUD-1 coumn. If the charges that cannot increase have increased or the tota of the charges that cannot increase more than 10 percent have exceeded the 10 percent increase imit, the ender must reimburse you at settement or within thirty (30) days after settement. 37 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

73 In the exampe above, the Charges That In Tota Cannot Increase More Than 10% were ony increased by 70 or 4 percent and did not exceed the 10 percent toerance. For the category Charges That Can Change in this exampe the borrower seected a pest inspection and survey provider that were not on the written ist. Loan terms The ast section on the HUD-1 (next page) ceary sets forth the terms of your oan, incuding the oan amount, your interest rate and your monthy payments. It wi aso discose the monthy escrow payment account information. It ets you know whether your interest rate, your oan baance, or your monthy payments can increase and whether your oan has a prepayment penaty or a baoon payment. Look at this information carefuy and make sure you are getting the oan and the terms that were set forth in your GFE. If the oan terms do not match the oan terms on your GFE or if you have questions, contact your ender before signing any documents. 38 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET

74 39 SHOPPING FOR YOUR HOME LOAN: SETTLEMENT COST BOOKLET