When a person applies for a mortgage loan for the purpose of funding a home purchase, federal law requires that the lender give them a Special Info Booklet published by the federal Department of Housing and Urban Development (HUD). The current title of this helpful handbook for loan applicants is Your home tool kit: A step by step guide.
The booklet is about 28 pages in length. It relates advice to potential borrowers, helping them to figure out what loan amount is affordable for them, given their personal financial situation. The advice is meant to inform potential home buyers about how mortgage loans work and how they can be sure to get a loan that works best for them.
It also includes step-by-step explanations of the many disclosures that loan applicants get during the loan process, including the Good Faith Estimate and HUD-1. It is quite detailed and should give potential borrowers most of the information they need to make good decisions about borrowing, buying and owning a home.
It also contains explanations of many of the terms and information about how to access additional resources, such as websites. The booklet addresses some of the technical terminology involved in mortgage loans and home buying, such as “escrow” and the “closing process”, as well as important terms found in loan contracts. It provides borrowers with a step-by-step guide to the home buying process. Included are worksheets that enable a borrower to track different loan offers.
Another worksheet helps a borrower calculate what their total monthly home payment would be, including homeowner’s insurance and property taxes.
While few people would find the booklet to be exciting reading, home buyers and mortgage borrowers are strongly advised to read the booklet in its entirety, and would undoubtedly benefit from understanding its contents in full.They would find it helpful.
The booklet must be provided only when the purpose of the loan is to purchase a home or to construct (construction-perm loan) a 1- to 4-family residential property, when the lender would take a first-position lien. The following types of loans are not covered:
- Loans for refinancings;
- Closed-end loans secured by a subordinate lien;
- Construction-only loans;
- Reverse mortgages; and
- Open-end equity lines of credit (HELOCs), but only if the lender or broker provides the booklet published by the Federal Reserve for HELOCs, “What you should know about Home
- Equity Lines of Credit.”
So, for these kinds of loans, the lender or mortgage broker does not have to provide the booklet to the borrower. The federal Consumer Finance Protection Bureau (CFPB) is legally empowered to issue a revised or separate special information booklet that deals with these transactions, or it may choose to endorse the forms or booklets published by other Federal agencies.
When Should I Receive the HUD Special Info Booklet?
The lender is legally obligated to provide the special information booklet by delivering it or placing it in the mail to the applicant no later than three business days after the loan application is received or prepared.
However, if the lender denies the borrower’s application for credit before the end of the three-business-day period, then the lender does not have to provide the booklet to the borrower. If a borrower uses a mortgage broker, the mortgage broker is obligated to provide the borrower with the booklet, and the lender need not do so. The goal is to ensure that a loan applicant receives the special information booklet at the earliest possible date.
What Is the Content of the HUD Special Info Booklet?
The booklet contains a wealth of information about buying and owning a home and applying for a mortgage loan. For example, it contains the following:
- Information that can help a borrower figure out what an affordable mortgage is for them;
- A complete description and explanation of the nature and purpose of the costs of owning a home;
- Explanations and samples of standard real estate forms;
- An explanation of the role played by escrow accounts in home purchase transactions;
- Explain the choices available in terms of real estate services;
- How to pick the type of mortgage that works for the borrower, i.e. fixed-rate or adjustable;
- Explain the unfair practices and unreasonable charges to be avoided.
The book alerts people shopping for a mortgage loan to risky loan features that they most likely want to avoid. The booklet explains why some loans are safer and more predictable than others and are probably the kind that a borrower should prefer.
Once informed about possible risks and how to avoid them, a borrower can make sure that they understand and are comfortable with the risks they are taking on when they buy a home. The borrower learns that they can find out if a loan has certain kinds of risky loan features from the “Loan Terms” section on the first page of their “Loan Estimate.”
For example, a balloon payment is a large payment that a borrower must make, usually at the end of their loan repayment period. Depending on the terms of the loan, the balloon payment could be as large as the entire balance of their mortgage, if the borrower has been making interest-only monthly payments.
Or, another example is the prepayment penalty. This is an amount of money that a borrower must pay if they should refinance or pay off their loan early. A prepayment penalty may apply even if the borrower sells their home before the mortgage is entirely paid.
These are risks that a borrower is probably well-advised to avoid. If they receive a loan offer that contains a balloon payment provision or a prepayment penalty, they may want to decline that offer and ask the lender what they can do to qualify for a loan agreement that does not include such provisions.
This information is relevant and important for anyone applying for a mortgage loan to use in purchasing a home. Abuses by real estate brokers and lenders are not new or unique, so every potential homebuyer should work to inform themselves about how the process should work. They can then consult a real estate attorney immediately, if a broker or lender asks for anything unusual, or if any proposed deal seems “off.”
Then, the booklet includes helpful information about steps to take after a person has completed a home purchase. For example, if a person falls behind on their mortgage payments, the company that accepts their mortgage payments may contact them. This company is a mortgage servicer, and it must let a person know what their options are for avoiding foreclosure.
The booklet includes contact information for a legitimate housing counselor and warns people to avoid scammers and the perpetrators of fraud who promise to lower mortgage payments. There is information about where to report a suspected scam or fraud.
In addition to keeping up with tax and insurance payments, a homeowner needs to stay current with maintenance and repairs as well. So, it is well worth the time and effort to read the contents of the booklet thoroughly.
Seeking Legal Help
If you are in the market for a home and a mortgage loan, It is a good idea to obtain and read the booklet, as well as other communications regarding home buying and mortgage lending. It is helpful for a borrower to know what to expect. Then, as noted above, if a lender, broker or real estate agent does something that seems out-of-line or unexpected, and you need additional advice, you can consult an experienced mortgage attorney.