Taking out a home mortgage is likely the biggest financial transaction most consumers ever undertake. Many of them do so without thoroughly understanding the process, which is understandable, as it requires a confusing avalanche of paperwork. The Consumer Financial Protection Bureau (CFPB) has been working to simplify this to assist consumers.
Starting October 3rd, for loans originating after that date, new rules and timelines will take effect:
This will eliminate some of the prior forms, and replace them with - we are told - new, easier-to-understand documents and disclosures.
Note: Contracts closing after October 3rd changes will be subject to the new rulings ONLY if the corresponding loan originates after that date. So buyers shopping now, may want to step up their pace - or be ready to hurry up and wait!
Know Before You Owe
The CFPB’s “Know Before You Owe” rule is meant to make everything from mortgage shopping to closing simpler for consumers, giving them greater control over the entire loan process. The rule includes two new forms intended to help consumers better understand the terms of their loan and the fees they are paying.
The Loan Estimate and the Closing Disclosure forms are given to borrowers at least three business days before closing and will replace four current forms:
- The Good Faith Estimate and initial Truth-in-Lending disclosure used during loan application
- The HUD-1 Settlement Statement ( NO MORE HUD!! boo hoo!)
- The final Truth-in-Lending form issued just before closing
The new Loan Estimate provides a summary of key terms along with estimated loan and closing costs.
The new Closing Disclosure provides a detailed accounting of the loan transaction.
The National Association of Realtors is therefore suggesting that 15 days be added to contract’s closing timeline, and here’s why: additional three-day waiting periods start each time one of these occurs:
- The type of loan changes.
- The mortgage loan rate changes more than one-eighth of a percent.
- A prepayment penalty is added.
Other minor changes may be made, but the corrected version must be provided to borrowers at least one day before closing, not at the closing table. In fact, last minute changes at the closing table will no longer be allowed at all. (Click to Tweet!)
Added to all this, some mortgage lenders are saying they will mail closing documents, which could add another three to four days.
On a brighter note, some observers estimate the process could be shortened up to two weeks if lenders begin to send mortgage documents electronically.
Here are a few additional points to help you better understand the new Closing Disclosure and what it means to your loan process:
- Each charge is separately itemized, so you see exactly what you are paying for.
- Fees are listed alphabetically, with no more uniform line numbers.
- The Closing Disclosure is provided by either the lender or closing agent, but the lender is liable for any mistakes it may contain.
- Each Closing Disclosure is unique, as different lenders charge different fees. They may also name those fees differently from each other (for example, one may use “termite inspection” and the other “pest inspection”).
The CFPB provides a toolkit that is a step-by-step guide explaining the entire process.
It’s important to note that these new changes do not apply to home equity lines of credit, mobile home mortgages, reverse mortgages or mortgages by lenders that make fewer than five loans per year.
We can help you understand and navigate these new rules and forms as they apply to your real estate transactions. eHomeHouston provides expert guidance, customer service and we'll work hand-in-hand with you, your lender and title company to make your dream of owning a new home happen according to a schedule you can plan on!
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