It is very difficult to procure a loan and a mortgage. For one, when you apply for a loan or a mortgage, there is a process of credit investigation. Your past transactions will be scrutinized including all loans you have paid off as well as those you have defaulted on or protested. The underwriters will look for assets in your name and your patterns of spending as well as sources of income. In other words, your whole life will be dredged up and looked over.
Second, if you pass the credit investigation, you will be assigned a credit score. This number represents how likely you are to pay your debts based on past credit history. This will also determine your credit standing, or the willingness of creditors to loan you money.
Third and the most difficult part of procuring a loan is reading through the credit documents and understanding how much you owe in total and how much interest you will pay. You will also have to understand how much of your monthly payments go towards repayment of the principal amount you borrowed and the interest you have to pay.
Even more difficult is factoring in all the incidental charges you will have to pay when closing the loan transaction especially when what is involved is real estate. Why? To purchase a piece of real estate, you have to determine that there are no questions or clouds on the title. Clearing the title will take time and money. Paying for title insurance will add to the cost of the loan.
Repayment insurance and property insurance premiums will also be added to the amount of the loan package. Documentary stamp taxes and notarial charges will also have to be considered and added to the total cost.
The law then protects buyers by requiring creditors to give borrowers a list of all the charges which will be added on top of the actual loan. Creditors will have to truthfully declare all the expenses that will be charged to the borrower. Any charges which are not included in the disclosure statement of the creditor may be questioned by the borrower.
If the borrower sees something amiss in the computation or in any of the aspect of the loan or any of the incidental charges, the borrower may make a qualified written request to the creditor or to the company servicing the loan. The creditor will then declare that an error had been made or explain why there is no error.
The purpose of these truthful disclosures is to prevent prospective borrowers from being duped into applying for a loan or mortgage only to be burdened with paying amounts that they did not know were to be included. The disclosure was also meant to stop creditors and insurers from jacking up charges and earning exorbitant amounts from transactions without the knowledge or informed consent of borrowers. Mortgage loans are usually long-term transactions that take years to pay. Thus, borrowers need protection from hidden charges.
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