Two Key Mortgage Documents You Must Understand

Man's Hands Signing Document

The level of disclosure that needs to be provided to borrowers on or soon after a mortgage application is higher than it has ever been.

This is for your protection, and it’s in your best interest to understand your lender’s paperwork, particularly two key documents: the Good Faith Estimate (GFE) and the Annual Percentage Rate (APR), which complies with the Truth in Lending Act (TILA).

The Good Faith Estimate

The GFE shows the estimated costs and other expenses related to the financing of a property. It’s significant, as it sets out what costs, including origination fees paid to your lender, cannot by law be increased at any point in the mortgage process. It also points out other fees that can be increased, but only up to a certain limit (“tolerance”).

At closing, the GFE estimates are checked against the actual fees you were charged for certain services. If there’s a discrepancy in your favor, or fees were charged that weren’t included on the GFE, there may be a “curing,” or a refund of fees.

Truth in Lending

Under TILA, you are entitled to know the APR of the loan. The APR is your adjusted interest rate after fees have been rolled in. In simple terms, this means that if two lenders have the same interest rate on the same mortgage, the one with the higher APR is charging higher fees.

It may sound confusing, but it pays to fully understand the paperwork.

Your mortgage professional can help decode it for you.

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