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Consumer Disclosure for Homebuyers

The law requires that you get certain information about your loan and settlement costs.

Sometimes you don't know when the law is on your side. But for homebuyers, RESPA is there. RESPA stands for the Real Estate Settlement Procedures Act. It's the federal law that applies to real estate transactions. One of the purposes of RESPA is to arm consumers with information and help them be better shoppers for settlement services and mortgage loans. RESPA requires that borrowers receive disclosures at various times while dealing with loan providers and settlement services. Some spell out the costs associated with the settlement, while others outline lender servicing and escrow account practices. It's all designed to help you make informed choices, and to understand the actual cost of your loan and closing costs.

Among other things, RESPA requires that the lender or mortgage broker give you a Good Faith Estimate of settlement charges you will likely have to pay. If you didn't get this Good Faith Estimate when you applied, the lender or mortgage broker has 3 business days to mail or deliver it to you. The amounts listed on the Good Faith Estimate are indeed only estimates. But that shouldn't stop you from asking questions. Keep your Good Faith Estimate so you can compare it with the final settlement costs and ask the lender questions about any changes.

The final charges are found in the HUD-1 Settlement Statement. One business day before the settlement, you have the right to inspect it. The fully completed HUD-1 Settlement Statement generally must be delivered or mailed to you at or before the settlement. But don't leave anything to chance. Be sure you get the name, address, and telephone number of the settlement agent from your lender so you know where to request a copy. Have it faxed to you. Unfortunately, in states where there is no settlement meeting, the escrow agent will mail you the HUD-1 after settlement, and you don't have the same legal right to inspect it one day before settlement.

RESPA also requires the lender or mortgage broker to tell you in writing whether it expects that someone else will be servicing your loan (collecting your payments). If so, don't be surprised when you get a notice in the mail, saying your loan with the ABC Mortgage Company has been transferred and to send all future payments to the XYZ Mortgage Company. If you have a question or complaint any time during the life of your loan, RESPA requires the company collecting your loan payments (your "servicer") to respond to you. Write to your servicer and start your letter by calling it a "qualified written request under Section 6 of RESPA." Describe the problem and include your name and account number. Your servicer must investigate and make appropriate corrections within 60 business days.

In addition, RESPA requires your lender to keep you informed about your escrow account. An escrow or impound account contains funds to insure that your property taxes and insurance premiums are paid on time. You pay an initial amount at the settlement to start the account, and an additional amount with each month's regular mortgage payment. Your lender may include a "cushion" or an extra amount to ensure that there's enough money to make the payments when due. But 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, your loan servicer must give you an initial escrow account statement showing all of your payments to be deposited into the escrow account, and all of the disbursements to be made from it 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.

If your lender doesn't respond or you feel your rights as a consumer have been violated, you may want to contact the local, state or federal agency. Your state's Attorney General may have a consumer affairs division. You may also send a copy of your complaint to the HUD Office of Consumer & Regulatory Affairs.  For more information contact HUD at 1-888-HOME4US (1-888-466-3487).

Sources used to create this article include the U.S. Department of Housing and Urban Development.