Understand RESPA And Why It Is Important
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What Is RESPA and Why Is It Important to Me?
The Real Estate Settlement Procedures Act (RESPA) was first enacted in 1974 and has been updated and improved since then. Every mortgage loan borrower has been affected by its terms and it is very important, but most people don't know what it is or does. The prime purpose is to a) make people better “shoppers” and b) prevent mortgage brokers and lenders from adding kickbacks and referral or other fees to your loan. Here are the major ingredients that are designed to help mortgage borrowers:
At application :
Prior to or at Closing/Settlement
- Mandates that borrowers receive a Good Faith Estimate (GFE) of prospective closing costs within 72 hours of their submitting an application for a loan. This feature is intended to a) give you a good idea of what your costs to close this loan will be, and b) prevent unscrupulous brokers or lenders from adding excess amounts to increase their income and lighten your savings.
- Requires that you receive a Special Information Booklet (for purchases only) that explains some of the components in buying real property.
- Gives you a Mortgage Servicing Disclosure that indicates whether your selected lender intends to sell your mortgage or will service your loan for the foreseeable future.
- You must receive an Affiliated Business Arrangement (AfBA) Disclosure which identifies any parties providing products or services to close your loan that are owned, in part or in full, by your mortgage lender, describing the type and manner of their association. You are not required to use this service provider if you are uncomfortable with their fee or relationship with your lender.
- Mandates that you receive a HUD-1 Settlement Statement at closing. This is a standard form that shows all charges applied to both borrower and seller as a result of this mortgage closing. There is an important feature that you should always use whether you are the buyer or sell of the property in question. You have the right to have a prospective final copy given to you 24 hours prior to closing the loan. Instead of trying to read and understand a complex-looking document of your charges during a mortgage settlement, you can examine the document in your own home. If you have any questions, ask them before the closing occurs the next day. Do not allow the closing to proceed until you understand all charges noted in this document.
There are some other provisions of this act that are also important but are, for the most part, informational and will make sense after you are a happy homeowner. Be aware that, while these federally-mandated disclosures are intended to protect you from paying extra monies, the responsibility to use these regulations to your best interest is yours, not the government's. Look at these documents closely and have any confusing items fully explained before proceeding with your loan or closing.