Your home loan toolkit

A step-by-step guide

Consumer Financial

Protection Bureau

1

Page 1

How can this toolkit help you?

Buying a home is exciting and, let’s face it, complicated. This booklet is a toolkit 

that can help you make better choices along your path to owning a home. 

After you finish this toolkit:

§ You’ll know the most important steps you need to take to 

get the best mortgage for your situation 

§ You’ll better understand your closing costs and what 

it takes to buy a home 

§ You’ll see a few ways to be a successful homeowner

Section 1: Page 3

Section 2: Page 16

Section 3: Page 24 

How to use the toolkit:

The location symbol orients you to where you are in the home buying process.

 The pencil tells you it is time to get out your pencil or pen to circle, check, or 

fill in numbers. 

 The magnifying glass highlights tips to help you research further to find 

important information.

 The speech bubble shows you conversation starters for talking to others and 

gathering more facts. 

About the CFPB 

The Consumer Financial Protection Bureau is a federal agency that helps 

consumer finance markets work by making rules more effective, by consistently 

and fairly enforcing those rules, and by empowering consumers to take more 

control over their economic lives. 

Have a question about a common consumer financial product or problem? 

You can find answers by visiting consumerfinance.gov/askcfpb. Have an issue 

with a mortgage, student loan, or other financial product or service? You can 

submit a complaint to the CFPB. We’ll forward your complaint to the company 

and work to get you a response. Turn to the back cover for details on how to 

submit a complaint or call us at (855) 411-2372. 
2 YOUR HOME LOAN TOOLKIT

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This booklet was created to comply with federal law pursuant to 12 U.S.C. 2604, 

12 CFR 1024.6, and 12 CFR 1026.19(g).
SECTION 1: CHOOSING THE BEST MORTGAGE FOR YOU 3

Page 3

Choosing the best 

mortgage for you

You’re starting to look for a mortgage or 

want to confirm you made a good decision. 

To make the most of your mortgage, you need to 

decide what works for you and then shop around to 

find it. In this section, you’ll find eight steps to get 

the job done right. 

IN THIS SECTION

1. Define what affordable 

means to you

2. Understand your credit

3. Pick the mortgage type 

that works for you

4. Choose the right down 

payment for you

5. Understand the tradeoff between points and 

interest rate

6. Shop with several lenders

7. Choose your mortgage

8. Avoid pitfalls and handle 

problems

1. Define what affordable means to you

Only you can decide how much you are comfortable paying 

for your housing each month. In most cases, your lender can 

consider only if you are able to repay your mortgage, not whether 

you will be comfortable repaying your loan. Based on your whole 

financial picture, think about whether you want to take on the 

mortgage payment plus the other costs of homeownership such 

as appliances, repairs, and maintenance.

THE TALK

Ask your spouse, a loved one, or friend about what affordable means to you:

“What’s more important—a bigger home with a larger mortgage or more 

financial flexibility?”

“How much do we want to budget for all the monthly housing costs, 

including repairs, furniture, and new appliances?”

“What will a mortgage payment mean for other financial goals?”

3
4 YOUR HOME LOAN TOOLKIT

Page 4

 KNOW YOUR NUMBERS 

Calculate the home payment you can take on by filling in the worksheets below:

Think about what an affordable home loan looks like for you. These worksheets can help. First, 

estimate your total monthly home payment. Second, look at the percentage of your income that will 

go toward your monthly home payment. Third, look at how much money you will have available to 

spend on the rest of your monthly expenses. 

Step 1. Estimate your total monthly home payment by adding up the items below

Your total monthly home payment is more than just your mortgage. There are more expenses that go 

along with owning your home. Start with estimates and adjust as you go.

EMPTY CELL MONTHLY ESTIMATE 

Principal and interest (P&I)

Your principal and interest payment depends on your home loan 

amount, the interest rate, and the number of years it takes to repay the 

loan. Principal is the amount you pay each month to reduce the loan 

balance. Interest is the amount you pay each month to borrow money. 

Many principal and interest calculators are available online.

 $

Mortgage insurance

Mortgage insurance is often required for loans with less than a 20% 

down payment.

+ $

Property taxes

The local assessor or auditor’s office can help you estimate property 

taxes for your area. If you know the yearly amount, divide by 12 and 

write in the monthly amount.

+ $

Homeowner’s insurance

You can call one or more insurance agents to get an estimate for homes 

in your area. Ask if flood insurance is required. 

+ $

Homeowner’s association or condominium fees, if they apply

Condominiums and other planned communities often require 

homeowner’s association (HOA) fees.

+ $

My estimated total monthly home payment = $
SECTION 1: CHOOSING THE BEST MORTGAGE FOR YOU 5

$

Page 5

Step 2. Estimate the percentage of your income spent on your monthly home payment 

Calculate the percentage of your total monthly income that goes toward your total monthly home 

payment each month. A mortgage lending rule of thumb is that your total monthly home payment 

should be at or below 28% of your total monthly income before taxes. Lenders may approve you for 

more or for less depending on your overall financial picture. 

My estimated total monthly 

home payment (from step 1)



My total monthly income 

before taxes



Percentage of my income 

going toward my monthly 

home payment

Step 3. Estimate what is left after subtracting your monthly debts

To determine whether you are comfortable with your total monthly home payment, figure out how 

much of your income is left after you pay for your housing plus your other monthly debts.

Total monthly income after taxes $

My estimated total monthly home payment (from step 1) — $

Monthly car payment(s) — $

Monthly student loan payment(s) — $

Monthly credit card payment(s) — $

Other monthly payments, such as child support or alimony — $

Total monthly income minus all debt payments

This money must cover your utilities, groceries, child care, health 

insurance, repairs, and everything else. If this isn’t enough, consider 

options such as buying a less expensive home or paying down debts.

= $

Step 4. Your choice

I am comfortable with a total monthly home payment of:

100 
6 YOUR HOME LOAN TOOLKIT

RESEARCH STARTER 

Page 6

2. Understand your credit 

Your credit, your credit scores, and how wisely you shop for a loan that best fits 

your needs have a significant impact on your mortgage interest rate and the fees 

you pay. To improve your credit and your chances of getting a better mortgage, 

get current on your payments and stay current. About 35% of your credit scores 

are based on whether or not you pay your bills on time. About 30% of your credit 

scores are based on how much debt you owe. That's why you may want to consider 

paying down some of your debts.

TIP

Be careful 

making any 

big purchases 

on credit 

before you 

close on your 

home. Even 

financing a new 

refrigerator 

could make 

it harder for 

you to get a 

mortgage.

Check out interest rates and make sure you’re getting the credit you’ve earned.

 ̈ Get your credit report at annualcreditreport.com and check it for errors. 

If you find mistakes, submit a request to each of the credit bureaus asking them 

to fix the mistake. For more information about correcting errors on your credit 

report, visit consumerfinance.gov/askcfpb. 

 ̈ For more on home loans and credit, visit consumerfinance.gov/owning-a-home.

TIP

Correcting 

errors on your 

credit report 

may raise your 

score in 30 

days or less. 

It’s a good 

idea to correct 

errors before 

you apply for a 

mortgage.

NOW IN THE FUTURE

§ If your credit score is below 700, you will 

likely pay more for your mortgage.

§ Most credit scoring models are built 

so you can shop for a mortgage within 

a certain period—generally between 

14 days and 45 days—with little or 

no impact on your score. If you shop 

outside of this period, any change 

triggered by shopping should be 

minor—a small price to pay for saving 

money on a mortgage loan.

§ If you work on improving your credit 

and wait to buy a home, you will likely 

save money. Some people who improve 

their credit save $50 or $100 on a typical 

monthly mortgage payment. 

§ An average consumer who adopts 

healthy credit habits, such as paying 

bills on time and paying down credit 

cards, could see a credit score 

improvement in three months or more. 

 YOUR CHOICE 

Check one:

 ̈ I will go with the credit I have. OR  ̈ I will wait a few months or more 

and work to improve my credit. 
SECTION 1: CHOOSING THE BEST MORTGAGE FOR YOU 7

Page 7

3. Pick the mortgage type—fixed or adjustable—that 

works for you 

With a fixed-rate mortgage, your principal and interest payment stays the same for 

as long as you have your loan. 

§ Consider a fixed-rate mortgage if you want a predictable payment. 

§ You may be able to refinance later if interest rates fall or your credit or financial 

situation improves. 

With an adjustable-rate mortgage (ARM), your payment often starts out lower 

than with a fixed-rate loan, but your rate and payment could increase quickly. It is 

important to understand the trade-offs if you decide on an ARM.

§ Your payment could increase a lot, often by hundreds of dollars a month. 

§ Make sure you are confident you know what your maximum payment could be 

and that you can afford it. 

Planning to sell your home within a short period of time? That’s one reason some 

people consider an ARM. But, you probably shouldn’t count on being able to sell 

or refinance. Your financial situation could change. Home values may go down or 

interest rates may go up.

You can learn more about ARMs in the Consumer Handbook on Adjustable Rate 

Mortgages (files.consumerfinance.gov/f/201401_cfpb_booklet_charm.pdf) or by 

visiting consumerfinance.gov/owning-a-home.

TIP

Many 

borrowers 

with ARMs 

underestimate 

how much 

their interest 

rates can rise. 

 YOUR CHOICE 

Check one:

 ̈ I prefer a fixed-rate mortgage. OR  ̈ I prefer an adjustable-rate mortgage.

Check for risky loan features

Some loans are safer and more predictable than others. It is a good idea to make 

sure you are comfortable with the risks you are taking on when you buy your home. 

You can find out if you have certain types of risky loan features from the Loan 

Terms section on the first page of your Loan Estimate. 

A balloon payment is a large payment you must make, usually at the end of your 

loan repayment period. Depending on the terms of your loan, the balloon payment 

could be as large as the entire balance on your mortgage. 

A prepayment penalty is an amount you have to pay if you refinance or pay off your 

loan early. A prepayment penalty may apply even if you sell your home. 
8 YOUR HOME LOAN TOOLKIT

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4. Choose the right down payment for you

A down payment is the amount you pay toward the home yourself. You put a percentage 

of the home’s value down and borrow the rest through your mortgage loan.

 YOUR CHOICE 

Check one:

YOUR DOWN PAYMENT WHAT THAT MEANS FOR YOU

 ̈ I will put down 20% 

or more.

A 20% or higher down payment likely provides the best rates and most 

options. However, think twice if the down payment drains all your savings. 

 ̈ I will put down 

between 5% 

and 19%.

You probably have to pay higher interest rates or fees. Lenders most 

likely require private mortgage insurance (PMI). PMI is an insurance 

policy that lets you make a lower down payment by insuring the lender 

against loss if you fail to pay your mortgage.

Keep in mind when you hear about “no PMI” offers that doesn’t mean zero 

cost. No PMI offers often have higher interest rates and may also require 

you to take out a second mortgage. Be sure you understand the details.

 ̈ I will make no down 

payment or a small 

one of less than 5%.

Low down payment programs are typically more expensive because 

they may require mortgage insurance or a higher interest rate. Look 

closely at your total fees, interest rate, and monthly payment when 

comparing options.

Ask about loan programs such as:

§ Conventional loans that may offer low down payment options.

§ FHA, which offers a 3.5% down payment program. 

§ VA, which offers a zero down payment option for qualifying veterans. 

§ USDA, which offers a similar zero down payment program for eligible 

borrowers in rural areas. 

The advantages of prepayment

Prepayment is when you make additional mortgage payments so you pay down 

your mortgage early. This reduces your overall cost of borrowing, and you may 

be able to cancel your private mortgage insurance early and stop paying the 

premium. Especially if your down payment is less than 20%, it may make sense to 

make additional payments to pay down your loan earlier.

TIP

Prepayment 

is your choice. 

You don’t have 

to sign up for a 

program or pay 

a fee to set it up.
SECTION 1: CHOOSING THE BEST MORTGAGE FOR YOU 9

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5. Understand the trade-off between points 

and interest rate

Points are a percentage of a loan amount. For example, when a loan officer talks about 

one point on a $100,000 loan, the loan officer is talking about one percent of the loan, 

which equals $1,000. Lenders offer different interest rates on loans with different 

points. There are three main choices you can make about points. You can decide you 

don’t want to pay or receive points at all. This is called a zero point loan. You can pay 

points at closing to receive a lower interest rate. Or you can choose to have points paid 

to you (also called lender credits) and use them to cover some of your closing costs. 

The example below shows the trade-off between points as part of your closing 

costs and interest rates. In the example, you borrow $180,000 and qualify for a 

30-year fixed-rate loan at an interest rate of 5.0% with zero points. Rates currently 

available may be different than what is shown in this example. 

COMPARE THREE SCENARIOS OF HOW POINTS AFFECT INTEREST RATE

RATE 4.875% 5.0% 5.125%

POINTS +0.375 0 -0.375

YOUR 

SITUATION

You plan to keep your 

mortgage for a long time. 

You can afford to pay 

more cash at closing.

You are satisfied 

with the market rate 

without points in 

either direction.

You don’t want to pay a 

lot of cash upfront and 

you can afford a larger 

mortgage payment.

YOU MAY 

CHOOSE

Pay points now and get 

a lower interest rate. This 

will save you money over 

the long run.

Zero points. Pay a higher interest rate 

and get a lender credit 

toward some or all of your 

closing costs.

WHAT 

THAT 

MEANS

You might agree to pay 

$675 more in closing 

costs, in exchange for a 

lower rate of 4.875%.

Now: You pay $675

Over the life of the loan: 

Pay $14 less each month

With no 

adjustments in 

either direction, 

it is easier to 

understand what 

you’re paying and 

to compare prices.

You might agree to a 

higher rate of 5.125%, in 

exchange for $675 toward 

your closing costs.

Now: You get $675

Over the life of the loan:

Pay $14 more each month
10 YOUR HOME LOAN TOOLKIT

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6. Shop with several lenders 

You’ve figured out what affordable means for you. You’ve reviewed your credit 

and the kind of mortgage and down payment that best fits your situation. Now is 

the time to start shopping seriously for a loan. The work you do here could save 

you thousands of dollars over the life of your mortgage.

TIP

A loan officer is 

not necessarily 

shopping on 

your behalf or 

providing you 

with the best fit 

or lowest cost 

loan. 

TIP

It is illegal 

for a lender 

to pay a loan 

officer more to 

steer you into 

a higher cost 

loan.

 GATHER FACTS AND COMPARE COSTS

 ̈ Make a list of several lenders you will start with

Mortgages are typically offered by community banks, credit unions, mortgage 

brokers, online lenders, and large banks. These lenders have loan officers you 

can talk to about your situation. 

 ̈ Get the facts from the lenders on your list

Find out from the lenders what loan options they recommend for you, and the 

costs and benefits for each. For example, you might find a discount is offered 

for borrowers who have completed a home buyer education program. 

 ̈ Get at least three offers—in writing—so that you can compare them

Review the decisions you made on pages 4 to 8 to determine the loan type, down 

payment, total monthly home payment and other features to shop for. Now ask at 

least three different lenders to give you a Loan Estimate, which is a standard form 

showing important facts about the loan. It should be sent to you within three days, 

and it shouldn’t be expensive. Lenders can charge you only a small fee for getting 

your credit report—and some lenders provide the Loan Estimate without that fee. 

 ̈ Compare Total Loan Costs 

 Review your Loan Estimates and compare Total Loan Costs, which you can see 

under Section D at the bottom left of the second page of the Loan Estimate. Total 

Loan Costs include what your lender charges to make the loan, as well as costs for 

services such as appraisal and title. The third page of the Loan Estimate shows the 

Annual Percentage Rate (APR), which is a measure of your costs over the loan term 

expressed as a rate. Also shown on the third page is the Total Interest Percentage

(TIP), which is the total amount of interest that you pay over the loan term as a 

percentage of your loan amount. You can use APR and TIP to compare loan offers.

RESEARCH STARTER

Loan costs can vary widely from lender to lender, so this is one place where a little 

research may help you save a lot of money. Here’s how:

 ̈ Ask real estate and title professionals about average costs in your area.

 ̈ Learn more about loan costs, and get help comparing options, at 

consumerfinance.gov/owning-a-home. 
SECTION 1: CHOOSING THE BEST MORTGAGE FOR YOU 11

Page 11

THE TALK

Talking to different lenders helps you to know what options are available 

and to feel more in control. Here is one way to start the conversation:

“This mortgage is a big decision and I want to get it right. Another lender 

is offering me a different loan that may cost less. Let’s talk about what the 

differences are and whether you may be able to offer me the best deal.”

 TRACK YOUR LOAN OFFERS

Fill in the blanks for these important factors:

LOAN OFFER 1 LOAN OFFER 2 LOAN OFFER 3

Lender name

Loan amount $ $ $

Interest rate % % %

o Fixed

o Adjustable

o Fixed

o Adjustable

o Fixed

o Adjustable

Monthly principal and interest $ $ $

Monthly mortgage insurance $ $ $

Total Loan Costs 

(See section D on the second 

page of your Loan Estimate.)

$ $ $

My best loan offer is: 
12 YOUR HOME LOAN TOOLKIT

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7. Choose your mortgage 

You’ve done a lot of hard work to get this far! Now it is time to make your call.

 CONFIRM YOUR DECISION

Check the box if you agree with the statement: 

 ̈ I can repay this loan.

 ̈ I am comfortable with my monthly payment.

 ̈ I shopped enough to know this is a good deal for me.

 ̈ There are no risky features such as a balloon payment or prepayment 

penalty I can’t handle down the road.

 ̈ I know whether my principal and interest payment will increase in the future. 

Still need advice? The U.S. Department of Housing and Urban Development 

(HUD) sponsors housing counseling agencies throughout the country to provide 

free or low-cost advice. To find a HUD-approved housing counselor visit 

consumerfinance.gov/find-a-housing-counselor or call HUD’s interactive voice 

system at (800) 569-4287.

Intent to proceed

When you receive a Loan Estimate, the lender has not yet approved or denied 

your loan. Up to this point, they are showing you what they expect to offer if you 

decide to move forward with your application. You have not committed to this 

lender. In fact, you are not committed to any lender before you have signed final 

closing documents.

Once you have found your best mortgage, the next step is to tell the loan officer 

you want to proceed with that mortgage application. This is called expressing your 

intent to proceed. Lenders have to wait until you express your intent to proceed 

before they require you to pay an application fee, appraisal fee, or most other fees. 

Rate lock

Your Loan Estimate may show a rate that has been “locked” or a rate that is 

“floating,” which means it can go up or down. Mortgage interest rates change daily, 

sometimes hourly. A rate lock sets your interest rate for a period of time. Rate locks 

are typically available for 30, 45, or 60 days, and sometimes longer. 
SECTION 1: CHOOSING THE BEST MORTGAGE FOR YOU 13

Page 13

The interest rate on your Loan Estimate is not a guarantee. If your rate is floating 

and it is later locked, your interest rate will be set at that later time. Also, if there are 

changes in your application—including your loan amount, credit score, or verified 

income—your rate and terms will probably change too. In those situations, the 

lender gives you a revised Loan Estimate.

There can be a downside to a rate lock. It may be expensive to extend if your 

transaction needs more time. And, a rate lock may lock you out of better market 

pricing if rates fall. 

THE TALK

Rate lock policies vary by lender. Choosing to lock or float your rate 

can make an important difference in your monthly payment. To avoid 

surprises, ask:

“What does it mean if I lock my rate today?”

“What rate lock time frame does this Loan Estimate provide?”

“Is a shorter or longer rate lock available, and at what cost?”

“What if my closing is delayed and the rate lock expires?”

“If I lock my rate, are there any conditions under which my rate could 

still change?”
14 YOUR HOME LOAN TOOLKIT

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8. Avoid pitfalls

WHAT NOT TO DO WHY?

Don’t sign documents where 

important details are left 

blank or documents you 

don’t understand. 

You are agreeing to repay a substantial amount of money over 

an extended period of time. Make sure you know what you are 

getting into and protect yourself from fraud. 

Don’t assume you are on 

your own.

HUD-approved housing counselors can help you navigate 

the process and find programs available to help first-time 

homebuyers. 

You can find a HUD-approved housing counselor in your area at 

consumerfinance.gov/find-a-housing-counselor or call HUD’s 

interactive voice system at (800) 569-4287.

Don’t take on more 

mortgage than you want 

or can afford. 

Make certain that you want the loan that you are requesting and 

that you are in a position to live up to your end of the bargain.

Don’t count on refinancing, 

and don’t take out a loan if 

you already know you will 

have to change it later.

If you are not comfortable with the loan offered to you, ask 

your lender if there is another option that works for you. Keep 

looking until you find the right loan for your situation.

Don’t fudge numbers 

or documents. 

You are responsible for an accurate and truthful application. Be 

upfront about your situation. Mortgage fraud is a serious offense.

Don’t hide important 

financial information.

Hiding negative information may delay or derail your 

loan application. 
SECTION 1: CHOOSING THE BEST MORTGAGE FOR YOU 15

Page 15

Handle problems

WHAT HAPPENED WHAT TO DO ABOUT IT

I have experienced a problem 

with my loan application or

how my loan officer is 

treating me.

Ask to talk to a supervisor. It may be a good idea to talk to 

the loan officer first, and if you are not satisfied, ask to speak 

with a supervisor.

I think I was unlawfully 

discriminated against when 

I applied for a loan or when 

I tried to buy a home.

The Fair Housing Act and Equal Credit Opportunity Act prohibit 

housing and credit discrimination. If you think you have been 

discriminated against during any part of the mortgage process, 

you can submit a complaint and describe what happened. To 

do so, you can call the Consumer Financial Protection Bureau at 

(855) 411-2372 or visit consumerfinance.gov/complaint. Submit 

a complaint to the U.S. Department of Housing and Urban 

Development (HUD) by calling (800) 669-9777, TTY (800) 927-

9275. Or, file a complaint online at HUD.gov.

You can find more information about your rights and how to submit 

a complaint with the CFPB at consumerfinance.gov/fair-lending.

I have a complaint. Submit a complaint to the Consumer Financial Protection 

Bureau if you have problems at any stage of the mortgage 

application or closing process, or later if you have problems 

making payments or become unable to pay. You can call (855) 

411-2372 or visit consumerfinance.gov/complaint. 

I think I may have been the 

victim of a predatory lender 

or a loan fraud.

Don’t believe anyone who tells you they are your “only chance 

to get a loan,” or that you must “act fast.” Learn the warning 

signs of predatory lending and protect yourself. Find more 

information at portal.hud.gov/hudportal/HUD?src=/program_

offices/housing/sfh/hcc/OHC_PREDLEND/OHC_LOANFRAUD.

You could learn more about your loan officer at 

nmlsconsumeraccess.org. 
16 YOUR HOME LOAN TOOLKIT

Page 16

Your closing

You’ve chosen a mortgage. Now it’s time to 

select and work with your closing agent.

Once you’ve applied for a mortgage, you may 

feel like you’re done. But mortgages are 

complicated and you still have choices to make. 

IN THIS SECTION

1. Shop for mortgage closing 

services

2. Review your revised Loan 

Estimate

3. Understand and use your 

Closing Disclosure

1. Shop for mortgage closing services

Once you’ve decided to move forward with a lender based on the Loan Estimate, 

you are ready to shop for the closing agent who gathers all the legal documents, 

closes the loan, and handles the money involved in your purchase. After you 

apply for a loan, your lender gives you a list of companies that provide closing 

services. You may want to use one of the companies on the list. Or, you may be 

able to choose companies that are not on the list if your lender agrees to work with 

your choice. The seller cannot require you to buy a title insurance policy from a 

particular title company.

TIP

Settlement 

services may 

feel like a drop 

in the bucket 

compared to 

the cost of the 

home. But in 

some states 

borrowers who 

shop around 

may save 

hundreds of 

dollars. 

Closing agent 

In most of the country, a settlement agent does your closing. In other states, 

particularly several states in the West, the person is known as an escrow agent. And 

in some states, particularly in the Northeast and South, an attorney may be required. 

RESEARCH STARTER

When you compare closing agents, look at both cost and customer service.

 ̈ Ask your real estate professional and your friends. These people may know 

companies they would recommend. Be sure to ask how that company handled 

problems and if they have a good reputation. 
SECTION 2: YOUR CLOSING 17

Page 17

 ̈ Review the list of companies your lender gave you. Select a few companies 

on the list and ask for references from people who recently bought a home. 

Ask those people how the company handled problems that came up during 

the transaction.

Title insurance

When you purchase your home, you receive a document most often called a deed, 

which shows the seller transferred their legal ownership, or “title,” to the home to 

you. Title insurance can provide protection if someone later sues and says they 

have a claim against the home. Common claims come from a previous owner’s 

failure to pay taxes or from contractors who say they were not paid for work done 

on the home before you purchased it.

Most lenders require a Lender’s Title Insurance policy, which protects the amount 

they lent. You may want to buy an Owner’s Title Insurance policy, which protects 

your financial investment in the home. The Loan Estimate you receive lists the 

Owner’s Title Insurance policy as optional if your lender does not require the policy 

as a condition of the loan. 

Depending on the state where you are buying your home, your title insurance 

company may give you an itemized list of fees at closing. This itemized list may be 

required under state law and may be different from what you see on your Loan 

Estimate or Closing Disclosure. That does not mean you are being charged more. 

If you add up all the title-related costs your title insurance company gives you, it 

should match the totals of all the title-related costs you see on your Loan Estimate 

or Closing Disclosure. When comparing costs for title insurance, make sure to 

compare the bottom line total.

Home inspector and home appraiser

When you are considering buying a home, it is smart to check it out carefully to see if 

it is in good condition. The person who does this for you is called a home inspector. 

The inspector works for you and should tell you whether the home you want to 

buy is in good condition and whether you are buying a “money pit” of expensive 

repairs. Get your inspection before you are finally committed to buy the home.

A home inspector is different from a home appraiser. The appraiser is an 

independent professional whose job is to give the lender an estimate of the home’s 

market value. You are entitled to a copy of the appraisal prior to your closing. This 

allows you to see how the price you agreed to pay compares to similar and recent 

property sales in your area.
18 YOUR HOME LOAN TOOLKIT

Page 18

2. Review your revised Loan Estimate

When important information changes, your lender is required to give you a new 

Loan Estimate that shows your new loan offer. 

It is illegal for a lender to quote you low fees and costs for its services on your 

Loan Estimate and then surprise you with much higher costs in a revised Loan 

Estimate or Closing Disclosure. However, a lender may change the fees it quotes 

you for its services if the facts on your application were wrong or changed, you 

asked for a change, your lender found you did not qualify for the original loan 

offer, or your Loan Estimate expired. 

Here are common reasons why your Loan Estimate might change: 

§ You decided to change loan programs or the amount of your down payment.

§ The appraisal on the home you want to buy came in higher or lower 

than expected.

§ You took out a new loan or missed a payment and that has changed your credit. 

§ Your lender could not document your overtime, bonus, or other income.

THE TALK

If your Loan Estimate is revised you should look it over to see what 

changed. Ask your lender:

“Can you explain why I received a new Loan Estimate?”

“How is my loan transaction different from what I was originally 

expecting?”

“How does this change my loan amount, interest rate, monthly payment, 

cash to close, and other loan features?”
SECTION 2: YOUR CLOSING 19

Page 19

3. Understand and use your Closing Disclosure 

You’ve chosen a home you want to buy and your offer has been accepted. You’ve 

also applied for and been approved for a mortgage. Now you are ready to take 

legal possession of the home and promise to repay your loan. 

At least three days before your closing, you should get your official Closing Disclosure, 

which is a five-page document that gives you more details about your loan, its key 

terms, and how much you are paying in fees and other costs to get your mortgage and 

buy your home. 

Many of the costs you pay at closing are set by the decisions you made when you 

were shopping for a mortgage. Charges shown under “services you can shop for” 

may increase at closing, but generally by no more than 10% of the costs listed on 

your final Loan Estimate.

The Closing Disclosure breaks down your closing costs into two big categories:

YOUR LOAN COSTS OTHER COSTS

§ The lender’s Origination Costs to make or 

“originate” the loan, along with application 

fees and fees to underwrite your loan. 

Underwriting is the lender’s term for making 

sure your credit and financial information 

is accurate and you meet the lender’s 

requirements for a loan. 

§ Discount points—that is, additional money 

you pay up front to reduce your interest rate.

§ Services you shopped for, such as your 

closing or settlement agent and related 

title costs. 

§ Services your lender requires for your loan. 

These include appraisals and credit reports.

§ Property taxes.

§ Homeowner’s insurance premiums. You can 

shop around for homeowner’s insurance 

from your current insurance company, or 

many others, until you find the combination 

of premium, coverage, and customer service 

that fits your situation. Your lender will ask 

you for proof you have an insurance policy on 

your new home. 

§ Any portion of your total mortgage payment 

you must make before your first full payment 

is due. 

§ Flood insurance, if required.

RESEARCH STARTER 

Get tips, a step-by-step checklist, and help with the rest of the documents you’ll 

see at closing at consumerfinance.gov/owning-a-home.
20 YOUR HOME LOAN TOOLKIT

Page 20

What is your Closing 

Disclosure?

The five-page Closing 

Disclosure sums up the terms 

of your loan and what you 

pay at closing. You can easily 

compare the numbers to the 

Loan Estimate you received 

earlier. There should not be 

any significant changes other 

than those you have already 

agreed to.

Take out your own Closing 

Disclosure, or review the 

example here. Double-check 

that you clearly understand 

what you’ll be expected to 

pay—over the life of your loan 

and at closing. 

 Projected Payments

 Loan Terms Can this amount increase after closing?

Loan Amount $162,000 NO

Interest Rate 3.875% NO

Monthly Principal & Interest

See Projected Payments below for your 

Estimated Total Monthly Payment

$761.78 NO

Does the loan have these features?

Prepayment Penalty YES • As high as $3,240 if you pay off the loan during the 

first 2 years

Balloon Payment NO

 Costs at Closing

 CLOSING DISCLOSURE PAGE 1 OF 5 • LOAN ID # 123456789

Payment Calculation Years 1-7 Years 8-30

Principal & Interest

Mortgage Insurance

Estimated Escrow

Amount can increase over time

 $761.78

+ 82.35

+ 206.13

$761.78

+ —

+ 206.13

Estimated Total 

Monthly Payment $1,050.26 $967.91

Estimated Taxes, Insurance 

& Assessments

Amount can increase over time

See page 4 for details

$356.13

a month

See Escrow Account on page 4 for details. You must pay for other property 

costs separately.

This estimate includes In escrow?

x Property Taxes YES

x Homeowner’s Insurance YES

x Other: Homeowner’s Association Dues NO

Closing Costs $9,712.10 Includes $4,694.05 in Loan Costs + $5,018.05 in Other Costs – $0 

in Lender Credits. See page 2 for details.

Cash to Close $14,147.26 Includes Closing Costs. See Calculating Cash to Close on page 3 for details.

Transaction Information

Borrower Michael Jones and Mary Stone

123 Anywhere Street

Anytown, ST 12345

Seller Steve Cole and Amy Doe

321 Somewhere Drive

Anytown, ST 12345

Lender Ficus Bank

Loan Information

Loan Term 30 years

Purpose Purchase

Product Fixed Rate

 

Loan Type x Conventional FHA 

 VA _____________

Loan ID # 123456789

MIC # 000654321

Closing Information

Date Issued 4/15/2013

Closing Date 4/15/2013

Disbursement Date 4/15/2013

Settlement Agent Epsilon Title Co.

File # 12-3456

Property 456 Somewhere Ave

Anytown, ST 12345

Sale Price $180,000

This form is a statement of final loan terms and closing costs. Compare this Closing Disclosure document with your Loan Estimate.

Closing Disclosure, page 1. The most important facts about your loan are on the first page.

ON PAGE 1 OF 5

Loan terms

Review your monthly payment. 

Part of it goes to repay what you 

borrowed (and may build equity 

in your new home), and part of 

it goes to pay interest (which 

doesn’t build equity). Equity is 

the current market value of your 

home minus the amount you 

still owe on your mortgage.

Costs at Closing

Be prepared to bring the 

full “Cash to Close” amount 

with you to your closing. This 

amount includes your down 

payment and closing costs. 

The closing costs are itemized 

on the following pages.

ON PAGE 2 OF 5

Total Loan Costs

Origination charges are fees 

your lender charges to make 

your loan. Some closing costs 

are fees paid to the providers 

selected by your lender. Some 

are fees you pay to providers 

you chose on your own.

Prepaids

Homeowner’s insurance is 

often paid in advance for the 

first full year. Also, some taxes 

and other fees need to be paid 

in advance.
SECTION 2: YOUR CLOSING 21

Page 21

Escrow 

An escrow or impound 

account is a special account 

where monthly insurance and 

tax payments are held until 

they are paid out each year. 

You get a statement showing 

how much money your lender 

or mortgage servicer plans 

to require for your escrow or 

impound account.

You also get an annual analysis 

showing what happened to the 

money in your account. Your 

lender must follow federal 

rules to make sure they do not 

end up with a large surplus 

or shortage in your escrow or 

impound account. 

Borrower-Paid Seller-Paid Paid by 

Others At Closing Before Closing At Closing Before Closing

A. Origination Charges $1,802.00

01 0.25 % of Loan Amount (Points) $405.00

02 Application Fee $300.00

03 Underwriting Fee $1,097.00

04

05

06

07 

08

B. Services Borrower Did Not Shop For $236.55

01 Appraisal Fee to John Smith Appraisers Inc. $405.00

02 Credit Report Fee to Information Inc. $29.80

03 Flood Determination Fee to Info Co. $20.00

04 Flood Monitoring Fee to Info Co. $31.75

05 Tax Monitoring Fee to Info Co. $75.00

06 Tax Status Research Fee to Info Co. $80.00

07

08

09

10

C. Services Borrower Did Shop For $2,655.50

01 Pest Inspection Fee to Pests Co. $120.50

02 Survey Fee to Surveys Co. $85.00

03 Title – Insurance Binder to Epsilon Title Co. $650.00

04 Title – Lender’s Title Insurance to Epsilon Title Co. $500.00

05 Title – Settlement Agent Fee to Epsilon Title Co. $500.00

06 Title – Title Search to Epsilon Title Co. $800.00

07

08

D. TOTAL LOAN COSTS (Borrower-Paid) $4,694.05

Loan Costs Subtotals (A + B + C) $4,664.25 $29.80

Loan Costs

CLOSING DISCLOSURE PAGE 2 OF 5 • LOAN ID # 123456789

J. TOTAL CLOSING COSTS (Borrower-Paid) $9,712.10

Closing Costs Subtotals (D + I) $9,682.30 $29.80 $12,800.00 $750.00 $405.00

Lender Credits

Closing Cost Details

Other Costs

E. Taxes and Other Government Fees $85.00

01 Recording Fees Deed: $40.00 Mortgage: $45.00 $85.00

02 Transfer Tax to Any State $950.00

F. Prepaids $2,120.80

01 Homeowner’s Insurance Premium ( 12 mo.) to Insurance Co. $1,209.96

02 Mortgage Insurance Premium ( mo.)

03 Prepaid Interest ( $17.44 per day from 4/15/13 to 5/1/13 ) $279.04

04 Property Taxes ( 6 mo.) to Any County USA $631.80

05

G. Initial Escrow Payment at Closing $412.25

01 Homeowner’s Insurance $100.83 per month for 2 mo. $201.66

02 Mortgage Insurance per month for mo.

03 Property Taxes $105.30 per month for 2 mo. $210.60

04

05

06

07

08 Aggregate Adjustment – 0.01

H. Other $2,400.00

01 HOA Capital Contribution to HOA Acre Inc. $500.00

02 HOA Processing Fee to HOA Acre Inc. $150.00

03 Home Inspection Fee to Engineers Inc. $750.00 $750.00

04 Home Warranty Fee to XYZ Warranty Inc. $450.00

05 Real Estate Commission to Alpha Real Estate Broker $5,700.00

06 Real Estate Commission to Omega Real Estate Broker $5,700.00

07 Title – Owner’s Title Insurance (optional) to Epsilon Title Co. $1,000.00

08

I. TOTAL OTHER COSTS (Borrower-Paid) $5,018.05

Other Costs Subtotals (E + F + G + H) $5,018.05

Details of your closing costs appear on page 2 of the Closing Disclosure.

 USE YOUR CLOSING DISCLOSURE TO CONFIRM THE DETAILS OF YOUR LOAN 

Circle one. If you answer no, turn to the page indicated for more information:

The interest rate is what I was expecting based on my Loan Estimate. YES / NO (see page 10)

I know whether I have a prepayment penalty or balloon payment. YES / NO (see page 7)

I know whether or not my payment changes in future years. YES / NO (see page 7)

I see whether I am paying points or receiving points at closing. YES / NO (see page 9)

I know whether I have an escrow account. YES / NO (see above)
22 YOUR HOME LOAN TOOLKIT

Page 22

Calculating Cash to Close

BORROWER’S TRANSACTION

K. Due from Borrower at Closing $189,762.30

01 Sale Price of Property $180,000.00

02 Sale Price of Any Personal Property Included in Sale

03 Closing Costs Paid at Closing (J) $9,682.30

04

Adjustments

05

06

07

Adjustments for Items Paid by Seller in Advance

08 City/Town Taxes to 

09 County Taxes to

10 Assessments to

11 HOA Dues 4/15/13 to 4/30/13 $80.00

12

13

14

15

L. Paid Already by or on Behalf of Borrower at Closing $175,615.04

01 Deposit $10,000.00

02 Loan Amount $162,000.00

03 Existing Loan(s) Assumed or Taken Subject to

04

05 Seller Credit $2,500.00

Other Credits

06 Rebate from Epsilon Title Co. $750.00

07

Adjustments

08

09

10

11

Adjustments for Items Unpaid by Seller

12 City/Town Taxes 1/1/13 to 4/14/13 $365.04

13 County Taxes to 

14 Assessments to

15

16

17

CALCULATION

Total Due from Borrower at Closing (K) $189,762.30

Total Paid Already by or on Behalf of Borrower at Closing (L) – $175,615.04

Cash to Close x From To Borrower $14,147.26

SELLER’S TRANSACTION

M. Due to Seller at Closing $180,080.00

01 Sale Price of Property $180,000.00

02 Sale Price of Any Personal Property Included in Sale

03

04

05

06

07

08

Adjustments for Items Paid by Seller in Advance

09 City/Town Taxes to 

10 County Taxes to

11 Assessments to

12 HOA Dues 4/15/13 to 4/30/13 $80.00

13

14

15

16

N. Due from Seller at Closing $115,665.04

01 Excess Deposit

02 Closing Costs Paid at Closing (J) $12,800.00

03 Existing Loan(s) Assumed or Taken Subject to

04 Payoff of First Mortgage Loan $100,000.00

05 Payoff of Second Mortgage Loan

06

07

08 Seller Credit $2,500.00

09

10

11

12

13

Adjustments for Items Unpaid by Seller

14 City/Town Taxes 1/1/13 to 4/14/13 $365.04

15 County Taxes to 

16 Assessments to

17 

18

19

CALCULATION

Total Due to Seller at Closing (M) $180,080.00

Total Due from Seller at Closing (N) – $115,665.04

Cash From x To Seller $64,414.96

Summaries of Transactions

CLOSING DISCLOSURE PAGE 3 OF 5 • LOAN ID # 123456789

Loan Estimate Final Did this change?

Total Closing Costs (J) $8,054.00 $9,712.10 YES • See Total Loan Costs (D) and Total Other Costs (I)

Closing Costs Paid Before Closing $0 – $29.80 YES • You paid these Closing Costs before closing

Closing Costs Financed 

(Paid from your Loan Amount) $0 $0 NO

Down Payment/Funds from Borrower $18,000.00 $18,000.00 NO

Deposit – $10,000.00 – $10,000.00 NO

Funds for Borrower $0 $0 NO

Seller Credits $0 – $2,500.00 YES • See Seller Credits in Section L

Adjustments and Other Credits $0 – $1,035.04 YES • See details in Sections K and L

Cash to Close $16,054.00 $14,147.26

Use this table to see a summary of your transaction.

Use this table to see what has changed from your Loan Estimate. ON PAGE 3 OF 5

Calculating Cash to Close

Closing costs are only a part 

of the total cash you need to 

bring to closing. 

Summaries of Transactions

The section at the bottom of 

the page sums up how the 

money flows among you, the 

lender, and the seller. 

ON PAGE 4 OF 5

Loan Disclosures

Page 4 breaks down what is and 

is not included in your escrow 

or impound account. Make sure 

you understand what is paid 

from your escrow account and 

what you are responsible for 

paying yourself.

Assumption

If you sell or transfer this property to another person, your lender

 will allow, under certain conditions, this person to assume this 

loan on the original terms.

 will not allow assumption of this loan on the original terms.

Demand Feature

Your loan 

 has a demand feature, which permits your lender to require early 

repayment of the loan. You should review your note for details. 

 does not have a demand feature. 

Late Payment

If your payment is more than 15 days late, your lender will charge a 

late fee of 5% of the monthly principal and interest payment.

Negative Amortization (Increase in Loan Amount)

Under your loan terms, you 

 are scheduled to make monthly payments that do not pay all of 

the interest due that month. As a result, your loan amount will 

increase (negatively amortize), and your loan amount will likely 

become larger than your original loan amount. Increases in your 

loan amount lower the equity you have in this property.

 may have monthly payments that do not pay all of the interest 

due that month. If you do, your loan amount will increase 

(negatively amortize), and, as a result, your loan amount may 

become larger than your original loan amount. Increases in your 

loan amount lower the equity you have in this property. 

 do not have a negative amortization feature.

Partial Payments

Your lender 

 may accept payments that are less than the full amount due 

(partial payments) and apply them to your loan.

 may hold them in a separate account until you pay the rest of the 

payment, and then apply the full payment to your loan.

 does not accept any partial payments.

If this loan is sold, your new lender may have a different policy.

Security Interest

You are granting a security interest in 

 456 Somewhere Ave., Anytown, ST 12345

You may lose this property if you do not make your payments or 

satisfy other obligations for this loan.

CLOSING DISCLOSURE PAGE 4 OF 5 • LOAN ID # 1234567890

Loan Disclosures

Escrow Account

For now, your loan 

 will have an escrow account (also called an “impound” or “trust” 

account) to pay the property costs listed below. Without an escrow 

account, you would pay them directly, possibly in one or two large 

payments a year. Your lender may be liable for penalties and interest 

for failing to make a payment. 

Escrow

Escrowed 

Property Costs 

over Year 1

$2,473.56 Estimated total amount over year 1 for 

your escrowed property costs:

Homeowner’s Insurance

Property Taxes

Non-Escrowed 

Property Costs 

over Year 1

$1,800.00 Estimated total amount over year 1 for 

your non-escrowed property costs:

Homeowner’s Association Dues

You may have other property costs.

Initial Escrow 

Payment

$412.25 A cushion for the escrow account you 

pay at closing. See Section G on page 2.

Monthly Escrow 

Payment

$206.13 The amount included in your total 

monthly payment. 

No Escrow

Estimated 

Property Costs 

over Year 1

Estimated total amount over year 1. You 

must pay these costs directly, possibly 

in one or two large payments a year.

Escrow Waiver Fee

 will not have an escrow account because you declined it your 

lender does not offer one. You must directly pay your property 

costs, such as taxes and homeowner’s insurance. Contact your 

lender to ask if your loan can have an escrow account.

In the future, 

Your property costs may change and, as a result, your escrow payment may change. You may be able to cancel your escrow account, 

but if you do, you must pay your property costs directly. If you fail 

to pay your property taxes, your state or local government may (1) 

impose fines and penalties or (2) place a tax lien on this property. If 

you fail to pay any of your property costs, your lender may (1) add 

the amounts to your loan balance, (2) add an escrow account to your 

loan, or (3) require you to pay for property insurance that the lender 

buys on your behalf, which likely would cost more and provide fewer 

benefits than what you could buy on your own. 

Additional Information About This Loan

x

x

x

x

x

Top image: A summary 

of important financial 

information appears on page 

3 of the Closing Disclosure.

Bottom image: More details 

of your loan appear on page 4 

of your Closing Disclosure.
SECTION 2: YOUR CLOSING 23

Page 23

ON PAGE 5 OF 5

Finance Charge

In addition to paying back the 

amount you are borrowing, you 

pay a lot of interest over the 

life of the loan. This is why it is 

worthwhile to shop carefully for 

the best loan for your situation.

Annual Percentage Rate (APR) 

Your APR is your total cost of 

credit stated as a rate. Your 

APR is generally higher than 

your interest rate, because the 

APR takes into consideration 

all the costs of your loan, over 

the full term of the loan.

If anything on the Closing 

Disclosure is not clear to you, 

ask your lender or settlement 

agent, “What does this mean?”

Contact Information

Confirm Receipt

Other Disclosures

Appraisal

If the property was appraised for your loan, your lender is required to 

give you a copy at no additional cost at least 3 days before closing. 

If you have not yet received it, please contact your lender at the 

information listed below. 

Contract Details

See your note and security instrument for information about 

• what happens if you fail to make your payments, 

• what is a default on the loan,

• situations in which your lender can require early repayment of the

loan, and 

• the rules for making payments before they are due.

Liability after Foreclosure

If your lender forecloses on this property and the foreclosure does not

cover the amount of unpaid balance on this loan,

 state law may protect you from liability for the unpaid balance. If you 

refinance or take on any additional debt on this property, you may 

lose this protection and have to pay any debt remaining even after 

foreclosure. You may want to consult a lawyer for more information.

 state law does not protect you from liability for the unpaid balance. 

Refinance

Refinancing this loan will depend on your future financial situation, 

the property value, and market conditions. You may not be able to 

refinance this loan.

Tax Deductions

If you borrow more than this property is worth, the interest on the 

loan amount above this property’s fair market value is not deductible 

from your federal income taxes. You should consult a tax advisor for 

more information.

By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received 

this form.

Applicant Signature Date Co-Applicant Signature Date

CLOSING DISCLOSURE PAGE 5 OF 5 • LOAN ID # 123456789

Total of Payments. Total you will have paid after 

you make all payments of principal, interest, 

mortgage insurance, and loan costs, as scheduled. $285,803.36

Finance Charge. The dollar amount the loan will 

cost you. $118,830.27

Amount Financed. The loan amount available after 

paying your upfront finance charge. $162,000.00

Annual Percentage Rate (APR). Your costs over 

the loan term expressed as a rate. This is not your 

interest rate. 4.174%

Total Interest Percentage (TIP). The total amount 

of interest that you will pay over the loan term as a 

percentage of your loan amount. 69.46%

Loan Calculations

x

Lender Mortgage Broker Real Estate Broker 

(B)

Real Estate Broker 

(S)

Settlement Agent

Name Ficus Bank FRIENDLY MORTGAGE 

BROKER INC.

Omega Real Estate 

Broker Inc.

Alpha Real Estate 

Broker Co.

Epsilon Title Co.

Address 4321 Random Blvd.

Somecity, ST 12340

1234 Terrapin Dr.

Somecity, MD 54321

789 Local Lane

Sometown, ST 12345 

45

987 Suburb Ct.

Someplace, ST 12340

123 Commerce Pl.

Somecity, ST 12344

NMLS ID 222222

ST License ID Z765416 Z61456 Z61616

Contact Joe Smith JIM TAYLOR Samuel Green Joseph Cain Sarah Arnold

Contact NMLS ID 12345 394784

Contact 

ST License ID

P16415 P51461 PT1234

Email joesmith@

ficusbank.com

JTAYLOR@

FRNDLYMTGBRKR.CM

sam@omegare.biz joe@alphare.biz sarah@

epsilontitle.com

Phone 123-456-7890 333-444-5555 123-555-1717 321-555-7171 987-555-4321

Questions? If you have questions about the 

loan terms or costs on this form, use the contact 

information below. To get more information 

or make a complaint, contact the Consumer 

Financial Protection Bureau at ? www.consumerfinance.gov/mortgage-closing

NOW IN THE FUTURE

§ Now you’ve spent time understanding 

what you need to do and what you need 

to pay, as a new homeowner.

§ Now is the time to step back and feel 

sure you want to proceed with the loan.

§ If you are not comfortable with your 

mortgage and your responsibility to 

make payments, you might not be able 

to keep your home.

§ If you’ve made a careful decision about 

what you can afford and the mortgage 

you wanted, you will be able to balance 

owning your home and meeting your 

other financial goals.

Loan calculations, disclosures, and contact information for your files are on page 5 of the Closing Disclosure.
24 YOUR HOME LOAN TOOLKIT

Page 24

Owning your home 

Now you’ve closed on your mortgage 

and the home is yours.

Owning a home is exciting. And your home is 

also a large investment. Here’s how to protect 

that investment.

IN THIS SECTION

1. Act fast if you get behind on 

your payments

2. Keep up with ongoing costs

3. Determine if you need 

flood insurance

4. Understand Home Equity 

Lines of Credit (HELOCs) 

and refinancing

1. Act fast if you get behind on your 

payments

If you fall behind on your mortgage, the company that accepts payments on your 

mortgage contacts you. This company is your mortgage servicer. Your servicer is 

required to let you know what options are available to avoid foreclosure. Talk to your 

mortgage servicer if you get into trouble, and call a housing counselor (see page 12

for contact information). HUD-approved counselors are professionals who can help 

you, often at little or no charge to you. 

Homeowners struggling to pay a mortgage should beware of scammers promising 

to lower mortgage payments. Only your mortgage servicer can evaluate you 

for a loan modification. If you suspect a scam you can call (855) 411-2372 or visit 

consumerfinance.gov/complaint.

2. Keep up with ongoing costs

Your mortgage payment is just one part of what it costs to live in your new home. 

Your escrow account holds your monthly taxes and homeowner’s insurance 

payments—but if you have no escrow account, you need to keep up with these 

on your own. Your home needs maintenance and repairs, so budget and save for 

these too. 
SECTION 3: OWNING YOUR HOME 25

Page 25

3. Determine if you need flood insurance 

Flooding causes more than $8 billion in damages in the United States in an 

average year. You can protect your home and its contents from flood damage. 

Depending on your property location, your home is considered either at high-risk 

or at moderate-to-low risk for a flood. Your insurance premium varies accordingly. 

You can find out more about flood insurance at FloodSmart.gov. Private flood 

insurance could also be available.

Although you may not be required to maintain flood insurance on all structures, 

you may still wish to do so, and your mortgage lender may still require you to do 

so to protect the collateral securing the mortgage. If you choose to not maintain 

flood insurance on a structure, and it floods, you are responsible for all flood losses 

relating to that structure.

4. Understand Home Equity Lines of Credit (HELOCs) 

and refinancing

Homeowners sometimes decide they want to borrow against the value of their 

home to help remodel or pay for other large expenses. One way to do this is with a 

Home Equity Line of Credit (HELOC). You can learn more about HELOCs at 

files.consumerfinance.gov/f/201401_cfpb_booklet_heloc.pdf.

Financial counselors caution homeowners against using a HELOC to wipe out 

credit card debt. If you use a HELOC as a quick fix to a serious spending problem, 

you could end up back in debt and lose your home. 

If you decide to take out a HELOC or refinance your mortgage, the Truth in Lending 

Act (TILA) gives you the right to rescind, meaning you can change your mind and 

cancel the loan. But you can only rescind a refinance or HELOC within three days 

of receiving a proper notice of the right to rescind from your lender. You cannot 

rescind if you are using your HELOC to buy a home.

In the case of a refinance, consider how long it will take for the monthly savings to 

pay for the cost of the refinance. Review the closing costs you paid for your original 

loan to purchase the home. Refinancing costs can be about the same amount. A 

common rule of thumb is to proceed only if the new interest rate saves you that 

amount over about two years (in other words, if you break even in about two years).

 Congratulations!

You have accomplished a lot. It is not easy—you should feel proud of the work 

you’ve done.
 Online tools

CFPB website

consumerfinance.gov

Answers to common questions

consumerfinance.gov/askcfpb

Tools and resources for home buyers

consumerfinance.gov/owning-a-home

Talk to a housing counselor

consumerfinance.gov/find-a-housing-counselor

 General inquiries

Consumer Financial Protection Bureau

1700 G Street NW

Washington DC 20552

 Submit a complaint

Online

consumerfinance.gov/complaint

By phone 

855-411-CFPB (2372); 

TTY/TDD 855-729-CFPB (2372); 

8 a.m. to 8 p.m. Eastern Time, Monday-Friday

By fax

855-237-2392

By mail

Consumer Financial Protection Bureau

P.O. Box 4503

Iowa City, Iowa 52244

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Last updated August 2015