Truth In Lending Statement (TIL)
This is our second post in our series to provide a simple explanation of what real estate closing documents are, and to prepare you so that the closing is a less daunting experience.
In this post, we are going to explain the Truth In Lending Statement, which is usually referred to as the TIL.
This statement, which should be made available before the closing takes place, is only applicable to a buyer who is borrowing funds purchase a property. It is intended to provide the borrower with an opportunity to compare the APR with the loan costs that are being charged. Below are the items on the statement that must be disclosed:
The APR – The Annual Percentage Rate represents an annual interest rate that includes the interest rate that is being charged as well as the costs that are being charged for the loan. This can be a little confusing, so please follow this link for our full explanation of what APR means..
Finance Charge – This is the total amount of interest, and other charges the lender is charging for the loan. This includes all of the interest that will be paid for the duration of the loan, rate buy-down costs, origination fees and points. It is the total dollar amount that the loan will cost a borrower.
The exact Amount Financed – Also disclosed on this statement, this should not be confused with the loan amount applied for. It is that amount, less any amounts prepaid up to the day of closing. This lets a borrower know the net amount of money that is being borrowed.
The Total Of Payments – This amount discloses how much the borrower will eventually pay after making minimum payments for the full duration of the loan. This includes all principle, interest, pre-paid finance charges and mortgage insurance.
Demand Feature – The statement must also provide a disclosure that defines the circumstances under which the loan principal and interest can be called due or accelerated or called due and payable on demand.
Variable Rate Feature – This discloses to the borrow that the loan rate can vary. This means that it can increase as well as decrease. The details should be spelled out in a separate disclosure.
Payment Amount – This is the exact Payment Amount, which includes principal, interest and mortgage insurance, which the borrower must pay each month.
Pre-payment penalty disclosure – Defines whether a fee will be charged and if a borrower would be eligible for a refund if the loan is paid off early. Prepaid charges are usually non-refundable while the full Finance Charge (as explained above) should be reduced in this event.
Filing fees – An estimate of the cost of recording the legal documents (mortgage or deed of trust) connected with the transaction, which will be charged at closing.
Assumption – Defines whether or not the loan can be passed on from a seller of a home to another buyer, where the buyer “assumes” all outstanding payments.
Lenders are required by law to provide the TIL statement in a timely manner. Your signature merely indicates that you received this information and does not obligate you or the lender in any way.
Hopefully this information is also helpful to borrowers who want to know what what to expect at a real estate closing.
Please continue reading our next post in our series about documents to help you to prepare for your closing event, in which we will explain the Note. Below are also posts that we have written that are related to an explanation of what real estate closing documents are, and to prepare you for a closing.
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Marius J Smook – Licensed Real Estate Eco-Broker, LEED AP for HOMES, Home Energy Rater.