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Buying a House Just Got Easier

By on October 15, 2015
Categories: TIPS & TRICKS

Wading through paperwork when buying a house has just gotten easier.

The documents that homeowners must sign are now shorter and stripped of industry jargon which should make the loan process more transparent.

The federally mandated changes should also make it possible for homebuyers to compare home loans from multiple lenders. The new requirements are expected to reduce the chance of expensive surprises during closing.

“Our new mortgage forms reduce the information gap between lenders and consumers, shedding light on a process that often feels like a mystery,” said Richard Cordray, who is the director of the Consumer Financial Protection Bureau, which implemented the changes. “It is time consumers have more power in the mortgage process and our new forms and online tools will help make that a reality.”

Here are highlights of the key changes that took effect on October 3:

The federal “Know Before You Owe” mortgage disclosure rule replaces four disclosure forms with two new ones, the Loan Estimate and the Closing Disclosure.

Consumers can use the Loan Estimate to make apples-to-apples comparisons when shopping for loans, which was previously hard to do. The CFPB recommends that you consider applying for loans from at least three lenders before choosing a mortgage.

The Loan Estimate document must be delivered to borrowers no later than the third business day after they complete a loan application.

Below you can see the first page of the Loan Estimate. You can review the document in its entirety on the Consumer Financial Protection Bureau website.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The new rules also require that you receive three business days to review your Closing Disclosure so you have time to ask questions before closing on a mortgage. This will be a big benefit to consumers because they will have time to understand exactly what they are committing to. With this extra time, homebuyers can compare the Closing Disclosure with the Loan Estimate to make sure that the terms shared in both documents are the same.

Normally, borrowers don’t see their closing documents until they are ready to sign and close on the loan.

A New Resource to Help Home Buyers

As part of the changes, the CFPB also created new online tools to assist consumers in navigating the mortgage process. The tools provide an interactive, step-by-step overview of the mortgage process and will help homebuyers decide how much they can afford to spend. The site also explains how consumers can use the new mortgage forms.

On the website, for instance, CFPB suggests what consumers should do when examining the Closing Disclosure. Here are some of the suggestions:

  • Check that the loan term, purpose, product and loan type match your most recent Loan Estimate.
  • Check your interest rate.
  • Check to see if the loan has a prepayment penalty.
  • Check to see if the loan has a balloon payment.
  • Check that the cash needed to close matches your most recent Loan Estimate.

Bottom Line:  The new federal mortgage forms should make the process of finding and evaluating home loans much easier.

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