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The Consumer Credit Protection Act, more commonly known as the Truth-in-Lending Act, went into effect in 1968. The law is intended to protect borrowers from predatory lending by requiring lenders to fully disclose all costs associated with securing a mortgage loan.
Prior to the implementation of the act, borrowers routinely were paying considerably more than what had been initially advertised or agreed upon in the beginning stages of the loan process. Now, lenders must provide the potential borrower with an approximate cost, not only in dollars but percentage terms within a specified period of time prior to the application. Then, the exact costs and interest rate must be provided to the borrower, according to the law, at least, one full business day prior to the closing, in a document know as The Uniform Settlement Statement. This document provides relevant data clearly and consistently laid out, regarding finance charges, the total amount of each payment, the number of monthly payments over the life of the loan, as well as other pertinent financial information to help the borrower understand and manage the loan.
Also notable, a borrower who has applied for an equity loans or a second mortgage has the option to back out of the loan agreement, if he or she does so within three days. However, the rescission option is not applicable for a single home loan, to initially purchase a home.
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- 3 Common Short Sale Mistakes