Starting October 3, mortgage lenders are required to start using new consumer disclosure forms that break down the costs and terms associated with home loans, said the New York Times. The new rules are designed to make the mortgage loan process more transparent and easier for homebuyers to understand.
Here’s what you need to know about the new mortgage disclosure laws.
- Instead of four disclosure forms, there are now only two: a Loan Estimate and a Closing Disclosure.
- The three-page Loan Estimate shows the loan amount, interest rate, borrower’s monthly payment, estimated taxes and insurance, and amount of cash needed to close the loan. Lenders must provide homebuyers with this form within three business days after they submit a loan application.
- Homebuyers should receive the five-page Closing Disclosure three business days before the scheduled closing. This form includes the final closing costs.
- Prospective homebuyers should check all details on the two forms to be sure the deal is what was agreed to, including loan term, rate lock, loan amount, interest rate (fixed or adjustable), prepayment penalties, balloon payments, etc.
- Because the disclosure laws are new, closing times may be longer until the industry adjusts to the new process. Experts anticipate that standard closing times may grow from 30 days to 45 days.
- Borrowers can expedite the process by providing all requested documents when requested, scheduling inspections as soon as possible, etc.
- Changing the loan in any way will extend the time until closing.
- Lenders will be penalized for not meeting the stated timing requirements.
The bottom line: the lending and loan closing process may initially be a bit longer, but it will help homebuyers better understand the financial commitment and the loan terms they have agreed to. An experienced Realtor® will have had training about the changes and can walk her clients through the process, step-by-step.
For more information, visit the Consumer Financial Protection Bureau’s “Owning a Home” pages, or contact your favorite Realtor®. She’ll be able to help!