The federal Truth in Lending Act (TILA) requires a mortgage lender to provide you with clear, purposeful written advice about the costs of a mortgage when you apply for a loan. The lender must provide you a copy of this advice to keep and do it before charging you some program charges except for a credit rating.
History
Congress passed TILA in 1968. The goal of the action was to promote economic stabilization and better competition in the lending industry by making it much easier for consumers to compare credit offers. Several laws passed because TILA, such as the Real Estate Settlement Procedures Act (RESPA), have put added disclosure requirements on lenders.
Features
Within three days of the time you apply for a mortgage, your lender should provide you with a good-faith estimate of the cost of the loan, the Federal Reserve states. Including a finance charge — the interest rate and lender’s fees represented as one figure — and the yearly percentage rate, which represents interest and lender’s fees as a fixed rate of interest over the life span of their loan. The TILA statement also includes details such as the amount of prepayment penalties and obligations, late-payment penalties.
Misconceptions
If you place in software with several mortgage lenders, then the TILA advice will allow you to compare the prices. However, the Credit Information Center states, many borrowers searching for the prices mistake the APR on the TILA statement for its true rate of interest. You also need to be aware that the data in the TILA is an estimate: Until you sign up an agreement with a lender to lock in the quoted rate, it could rise until you close to the home.
Limitations
You can not use an APR to compare fixed-rate and adjustable-rate mortgages since the APR uses only the very first low rate of the ARM, without factoring in the rate could rise later. Another problem, the Mortgage Professor site states, is that the APR is based on prices over the life span of the loan: If you are going to be living there only a couple of years, which may not be a relevant standard.
Penalties
If a lender violates the TILA principles for disclosure, he could avoid penalties by proving it was an honest mistake or repairing the error within 60 days, the Fair Debt Collection site states. If neither occurs, you can sue the lender for compensation, and she may also face administrative penalties out of one of the nine different federal agencies that manage any component of TILA.