Buying Your Home:
Settlement Costs and Information
II. Buying and Financing a Home
RESPA Disclosures
One of
the purposes of RESPA is to help consumers become better shoppers for settlement
services. RESPA requires that borrowers receive disclosures at various
times. Some disclosures spell out the costs associated with the settlement,
outline lender servicing and escrow account practices and describe business
relationships between settlement service providers.
Good Faith Estimate of Settlement Costs. RESPA
requires that, when you apply for a loan, the lender or mortgage broker
give you a Good Faith Estimate of settlement service charges you will likely
have to pay. If you do not get this Good Faith Estimate when you apply,
the lender or mortgage broker must mail or deliver it to you within the
next three business days.
Be aware
that the amounts listed on the Good Faith Estimate are only estimates.
Actual costs may vary. Changing market conditions can affect prices. Remember
that the lender's estimate is not a guarantee. Keep your Good Faith
Estimate so you can compare it with the final settlement costs and ask
the lender questions about any changes.
Servicing Disclosure Statement. RESPA requires
the lender or mortgage broker to tell you in writing, when you apply for
a loan or within the next three business days, whether it expects that
someone else will be servicing your loan (collecting your payments).
Affiliated Business Arrangements. Sometimes,
several businesses that offer settlement services are owned or controlled
by a common corporate parent. These businesses are known as "affiliates." When
a lender, real estate broker, or other participant in your settlement refers
you to an affiliate for a settlement service (such as when a real estate
broker refers you to a mortgage broker affiliate), RESPA requires the referring
party to give you an Affiliated Business Arrangement Disclosure. This form
will remind you that you are generally not required, with certain exceptions,
to use the affiliate and are free to shop for other providers.
HUD-1 Settlement Statement. One business day before
the settlement, you have the right to inspect the HUD-1 Settlement Statement.
This statement itemizes the services provided to you and the fees charged
to you. This form is filled out by the settlement agent who will conduct
the settlement. Be sure you have the name, address, and telephone number
of the settlement agent if you wish to inspect this form. The fully completed
HUD-1 Settlement Statement generally must be delivered or mailed to you
at or before the settlement. In cases where there is no settlement meeting,
the escrow agent will mail you the HUD-1 after settlement, and you have
no right to inspect it one day before settlement.
Escrow Account Operation & Disclosures. Your
lender may require you to establish an escrow or impound account to insure
that your taxes and insurance premiums are paid on time. If so, you will
probably have to pay an initial amount at the settlement to start the account
and an additional amount with each month's regular payment. Your escrow
account payments may include a "cushion" or an extra amount to ensure that
the lender has enough money to make the payments when due. RESPA limits
the amount of the cushion to a maximum of two months of escrow payments.
At the
settlement or within the next 45 days, the person servicing your loan must
give you an initial escrow account statement. That form will show all of
the payments which are expected to be deposited into the escrow account
and all of the disbursements which are expected to be made from the escrow
account during the year ahead. Your lender or servicer will review the
escrow account annually and send you a disclosure each year which shows
the prior year's activity and any adjustments necessary in the escrow payments
that you will make in the forthcoming year.
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