Your Home Loan Toolkit – Comprehensive Bullet-Point Study Notes

Page-by-Page Study Notes

Front Matter & Navigation Aids

• Purpose of booklet: comply with federal law (12\ USC\ 2604,\ 12\ CFR\ 1024.6,\ 12\ CFR\ 1026.19(g)) and guide consumers through mortgage process.
• Three major sections and their starting pages:
– Section 1 (p.3): Choosing the best mortgage.
– Section 2 (p.16): Your closing.
– Section 3 (p.24): Owning your home.
• Icon legend:
– 📍 Location symbol = where you are in the process.
– ✏️ Pencil = worksheet/action item to fill in.
– 🔍 Magnifying glass = tips for deeper research.
– 💬 Speech bubble = conversation starters.
• CFPB role: makes rules, enforces them, empowers consumers.
– AskCFPB resource for FAQs.
– Complaint hotline: (855)\ 411\text{-}2372.

Section 1 Choosing the Best Mortgage for You

1. Define “Affordable” for YOUR Situation

• Lender checks only ability to repay; comfort level is up to you.
• Consider non-mortgage housing costs: appliances, maintenance, repairs, furniture.
• Conversation starters:
– Bigger home vs. flexibility?
– Total monthly housing budget?
– Impact on other goals?
• Worksheet highlights:
– Step 1: Sum P&I + mortgage insurance + property tax + homeowners insurance + HOA = Estimated Total Monthly Home Payment.
– Step 2: Housing-to-income ratio guideline \le 28\% of gross income.
– Step 3: Subtract other debts (car, student loan, credit cards, support) → ensure leftover covers utilities, groceries, etc.
– Step 4: Declare a payment you ARE comfortable with.

2. Understand Your Credit

• Two biggest credit-score factors:
– 35\% = on-time payment history.
– 30\% = credit utilization (amount owed).
• Actions:
– Pull free reports at AnnualCreditReport.com, dispute errors (can raise score in <30 days).
– Pay down debt and stay current.
• Mortgage shopping window: most models allow multiple credit inquiries within 14\text{–}45 days without major score hit.
• Strategy choice: proceed now vs. wait and improve (could save \$50\text{–}\$100 per month).

3. Pick Your Mortgage Type

• Fixed-Rate Mortgage (FRM): P&I never changes. Good for predictability; can refinance if rates drop.
• Adjustable-Rate Mortgage (ARM): lower initial rate/payment but can rise quickly. Know the maximum possible payment.
• Suitable only if you can handle increases or plan (but don’t rely) on selling early.
• Risky features check (Loan Estimate page 1 → Loan Terms):
– Balloon payment = large lump-sum at end.
– Prepayment penalty = fee for paying off early/refinancing.

4. Choose Your Down-Payment Size

• \ge 20\%: best rates/terms, no PMI, but avoid draining all savings.
• 5\%\text{–}19\%: likely PMI or higher rate; “No-PMI” marketing usually embeds cost in rate or via second mortgage.
• <5\% or zero: costliest—higher rate or insurance. Programs:
– Conventional low-down-payment.
– FHA 3.5\%.
– VA 0\% for eligible vets.
– USDA 0\% in rural areas.
• Prepayment (extra principal) reduces interest & may cancel PMI sooner; no enrollment fee necessary.

5. Points vs. Interest Rate Trade-Off

• Point = 1\% of loan amount.
• Options:

1. Zero-point loan → market rate.

2. Pay points → lower rate & monthly payment.

3. Receive lender credits (negative points) → higher rate, lower cash due at closing.
   • Example (\$180{,}000, 30-yr FRM, zero-point rate 5.0\%):
   – 4.875\% with +0.375 points ⇒ pay \$675 now, save \$14/mo.
   – 5.125\% with -0.375 points ⇒ receive \$675 credit, pay \$14 more per month.

6. Shop with Several Lenders

• Gather at least \ge3 written Loan Estimates.
• Lenders may charge only a small credit-report fee (or none) before issuing LE.
• Compare Total Loan Costs (Section D, page 2 of LE), APR, and TIP.
• Reminder: loan officers are not obligated to give best deal; steering into higher-cost loan for extra pay is illegal.
• Research local averages; some lenders discount for home-buyer education.
• Tracking table: loan amount, rate (fixed/ARM), P&I, mortgage insurance, Total Loan Costs.

7. Choose & Lock

• Decision checklist: can repay, comfortable payment, shopped thoroughly, no unmanageable risky features, understand future payment changes.
• HUD-approved housing counselors: consumerfinance.gov/find-a-housing-counselor or (800)\ 569\text{-}4287.
• Intent to Proceed: tell chosen lender; only then can most fees be charged.
• Rate Lock: fixes rate for 30/45/60 days; may cost to extend; miss out if rates fall.
– Ask: lock terms, fees, what if delay, conditions allowing rate change.

8. Avoid Pitfalls & Handle Problems

• Never sign blanks or docs you don’t understand.
• Don’t exaggerate income or hide info—mortgage fraud.
• Do NOT rely on future refinance to “fix” an unaffordable loan.
• Use HUD counselors; verify loan officer via NMLSConsumerAccess.org.
• Discrimination or other complaints: CFPB (855)\ 411\text{-}2372, HUD Fair Housing (800)\ 669\text{-}9777.
• Predatory-lending red flags: “act fast,” “only chance,” high upfront fees.

Section 2 Your Closing

1. Shop for Closing/Settlement Services

• After LE, lender supplies provider list; you may pick any willing provider. Seller cannot require a specific title company.
• Possible settlement professionals: settlement agent (most states), escrow agent (West), attorney (Northeast/South).
• Compare both cost & customer service; get references.
• Title Insurance:
– Lender’s policy (required).
– Owner’s policy (optional but protects your equity).
– Itemized state forms may differ from LE/CD totals—compare bottom-line.
• Home Inspection vs. Appraisal: inspector protects YOU; appraiser protects lender & sets market value. Copies of appraisal must be provided.

2. Revised Loan Estimate Triggers

• Lender must re-issue LE if key info changes. Legitimate reasons:
– You alter loan type/down payment.
– Appraisal differs.
– New debt or missed payment lowers credit.
– Unable to verify income.
• Illegal to low-ball fees then raise without valid change-in-circumstance.
• Questions to ask: Why revised? How does it affect loan amount, rate, monthly payment, cash to close?

3. Closing Disclosure (CD) — 5 Pages

• Must arrive \ge3 business days before closing.
• Page 1 Key Boxes:
– Loan Terms (amount, rate, P&I, prepayment penalty, balloon).
– Projected Payments: year 1-7 vs. 8-30 if changes.
– Costs at Closing: Closing Costs & Cash to Close.
• Pages 2 & 3 detail Loan Costs and Other Costs; totals must generally stay within \le10\% of quoted LE for “services you can shop for.”
• Page 3 also compares Loan Estimate vs. Final and shows Borrower/Seller cash flows.
• Page 4: Escrow disclosure, loan features (assumption, late fees, negative amortization, partial payments), security interest description.
• Page 5: Total of Payments, Finance Charge, Amount Financed, APR, TIP, contact list, appraisal & foreclosure liability notices.
• Use CD checklist: confirm rate, points, escrow, payment change, prepayment/balloon presence.

Section 3 Owning Your Home

1. Act Fast if Behind on Payments

• Servicer must inform you of workout options; call immediately.
• HUD counselors offer free/low-cost help.
• Beware loan-modification scammers—only servicer can modify. Complaints to CFPB.

2. Ongoing Costs & Budgeting

• If no escrow, you must self-manage taxes & insurance.
• Plan for maintenance/repairs; set aside emergency fund.

3. Flood Insurance Basics

• Average annual U.S. flood damage > \$8\text{ billion}.
• Risk categories: high vs. moderate/low affect premium.
• Info: FloodSmart.gov. Private insurers may offer policies.
• Lender may require coverage even when law doesn’t. No insurance = you bear full flood loss.

4. HELOCs & Refinancing

• HELOC lets you borrow against equity; see CFPB HELOC booklet.
• Caution: using HELOC to pay credit cards can restart debt cycle & endanger home.
• Right of Rescission (TILA): 3-day cancel window for HELOCs & most refinances (not for purchase money).
• Typical refi rule of thumb: proceed if interest-rate reduction saves enough to recoup closing costs in \le2 years.

Online & Contact Resources

• Tools: consumerfinance.gov/owning-a-home (worksheets, interest-rate data, closing-doc explainer).
• Ask CFPB: consumerfinance.gov/askcfpb.
• Housing counselor locator: consumerfinance.gov/find-a-housing-counselor.
• Complaint portal: consumerfinance.gov/complaint.
• Toll-free: (855)\ 411\text{-}CFPB (2372). TTY 855\ 729\text{-}2372.
• Social media: facebook.com/cfpb, twitter.com/cfpb.

Ethical / Practical Implications & Real-World Relevance

• Transparent comparisons (LE & CD) empower consumers to avoid discriminatory or predatory loans.
• Understanding escrow, taxes, insurance, and maintenance costs prevents foreclosure and neighborhood instability.
• Federal protections (RESPA, TILA, ECOA, Fair Housing) create fair markets; knowing complaint channels enforces them.
• Sound borrowing habits (healthy credit, manageable ratios, emergency savings) promote long-term financial health and community economic stability.