New federal rules took effect last month designed to make it easier for you to know what you’ll owe when you apply for a mortgage.
The changes are a result of new federal rules designed to protect homebuyers from misunderstanding the terms of their loans. It stemmed from the realization that many homebuyers weren’t able to review their final paperwork until the day of closing, sometimes even right before they needed to sign.
The new rules – which have been dubbed the “Know before you owe” rules – are expected to extend the time it takes to close on a typical home purchase from 30 days to at least 45 days.
In 2011, the Consumer Financial Protection Bureau was tasked with integrating mortgage loan disclosures mandated by two previous laws: the Truth in Lending Act, or TILA, and the Real Estate Settlement Procedures Act, or RESPA. Together, the new rule set is known as TILA-RESPA and has resulted in the elimination of four disclosure forms familiar to homebuyers:
- The good faith estimate, or GFE
- The initial and final truth-in-lending disclosures, or TILs
- The HUD-1 settlement statement, used to itemize services and fees charged to the borrower.
These four forms have now been replaced with two new ones: the Loan Estimate and the Closing Disclosure.
The new forms are easier to understand and easier to use. They are also universal, making it easier for you to compare between financial institutions, especially when you are selecting your lender.
The Loan Estimate
This document outlines the key details of the transaction, such as the loan amount, the rate, monthly payments, closing costs and amount of cash you’ll need at closing. Since every lender now has to use the same form, it is easier for you to shop around and compare loan offers “apples to apples.”
The Closing Disclosure
The closing disclosure is the final transaction and outlines all the details of the home financing, including the closing costs and fees. It is designed to help prevent costly surprises at the closing table.
The important thing to note is that the lender is required to give you this form at least three business days before closing. The idea behind this is that it should give you time to review the form and confirm that you’re getting what you expected, ask questions and negotiate over any changes.
This aspect of the new rule will force buyers, sellers, title agents, real estate agents and lenders to work together effectively to keep the closing process from dragging out. Communication is key.
If you’re in the market for a new home be aware that closing times will now be at least 45 days. In addition, make sure you work with a lender you feel has your best interest at heart. You’ll want someone who is accessible and you can trust to submit paperwork swiftly.
If you have questions about how this new rule will impact your home buying process, reach out to our team of Home Mortgage Bankers at your local MidWestOne location.