This mandatory disclosure has made it much easier for the borrower to compare various loan offers in an “apples to apples” fashion. Truth in Lending is when a loan applicant is provided with a disclosure statement that gives all of the information associated with the loan.
There are five different areas that will be listed on your Truth in Lending Disclosure. It is important to review all areas of the agreement and understand each before you accept the loan terms.
Annual Percentage Rate (APR)
This rate is always shown to be higher than the rate that is quoted on a loan. This is due to the fact that it factors in a number of different things such as finance charges, mortgage insurance paid during the loan, and the interest rate.
Finance Charge
This will vary from one borrower to the next and it is shown as the estimated costs for closing. There are a number of different charges that can be considered finance charges through the TIL Act.
Amount Financed
This is simply the money that is being loaned. It includes the principal loan and anything financed by the creditor that was not considered with the finance charge. It does not include finance charges that were prepaid. Anything that is paid in advance is not taken into consideration when doing the loan disclosure.
Total of Payments
The number of payments that need to be made to satisfy the loan is usually done over a long period of time. Many home loans are for an average of 30 years. Once the final payment is made, the complete loan is satisfied. This includes the principal amount, all insurance fees and finance charges.
Payment Schedule
A schedule gives the homebuyer information as to when the payments are due, what portion goes to the principal and how much goes to the interest. There is also information about late fees and any applicable penalties that would be associated with this.
Shopping Around
Many times, people will find a house that is out of their price range, and then not be able to get the appropriate financing. In most cases, it is best to shop around for a loan and then look for the appropriate house that can be financed.
Loan rates and specifics can vary greatly from one lender to the next and in some cases can change on a daily basis. Comparing a few loan offers will help to choose the one that offers all of the best terms. When a good loan is found, see what is available in terms of locking in the rate before committing. This can give you a few extra days to still comparison shop and ensure that it is the best loan for the situation.
Closing Notes
A TIL disclosure must be given to an applicant within three days of receipt of the loan application. It is usually based on the Good Faith Estimate, which can vary slightly when it comes time to close. Carefully reviewing these documents will help to ensure that the best decision is being made. If the terms are not agreeable, there is no harm in searching for other financing. Find the lender that provides the best possible loan for that new home.
A financial counselor from Brighton, Andrew McDonald also contributes content for www.financechoices.co.uk, a UK credit card comparison site offering terrific deals on balance transfers when you’re ready to switch card companies.
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