Good Faith Estimates and Truth in Lending[cite::98::cite]

Understanding and Comparing Good Faith Estimates

To protect consumers and encourage comparison shopping, a standardized form called a Good Faith Estimate of closing costs was established by HUD. It holds lenders accountable for their quotes.

  • Page one — summarizes your loan interest rate, loan terms and escrow account.
  • Page two — outlines the costs involved in your mortgage loan.
  • Page three — explains the tolerance levels allowed in the form and offers a shopping chart.

Understanding Truth in Lending

The Truth in Lending Act (TILA) of 1968 is a federal law that requires consumers be informed about how costs associated with borrowing are calculated and disclosed on a standardized form.

  • The box at the top of the form details the itemization of amount financed or loan charges considered in the calculation of your annual percentage rate (APR).
  • The top right shows loan terms, interest rate and payment information.
  • The middle of the page contains four boxes showing the APR, the finance charge for the term of the loan, the amount financed and the total payments assuming you pay as agreed for the life of the loan.
  • Below the boxes the interest rate and payment summary are shown and include various features about your loan.

Remember: the APR takes some loan charges into account and is not the interest note rate. Be concerned if the APR is significantly higher than your note rate.

The Process

By law, the Good Faith Estimate and Truth-in-Lending form must be provided to you within three business days of your lender receiving your completed loan application.

Quick Tip: Always Compare

When you close on your new home, you’ll receive a HUD Settlement Statement of charges. Compare it to your Good Faith Estimate.

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