If new mortgage rules have their way, the complex, murky nature of mortgage disclosures and mortgage rules will be a thing of the past. Affectionately dubbed the “Know Before You Owe” rules, the Consumer Financial Protection Bureau’s (CFPB) recent rules overhaul enhances the clarity and understanding of the mortgage process for homebuyers.
From loan disclosure documents to three-day review delays, here is what homebuyers need to know concerning the new mortgage rules.
The TILA-RESPA Integrated Disclosure Rule
TILA-RESPA (TRID) is the CFPB’s mortgage rule overhaul, and TRID divides loan disclosure into two sets of documents that total eight pages. The TRID changes that took effect in October of 2015 focused on simplifying the loan estimate as well as the closing disclosure.
Understanding the Loan Estimate
The first set of documents in the TRID pertain to loan estimates. With the new rules, expect to receive a loan estimate within three days of providing information to a lender.
The loan estimate will ultimately detail all pertinent loan terms, which should include:
- Projections for the monthly mortgage (projections ought to include the costs of taxes, insurance and any other necessary assessments)
- Clear answers to important and frequently asked questions (examples include answers to whether mortgage amounts will increase after closing and whether the loan will have prepayment penalties)
- Information regarding the cash needed at the time of settlement
- Estimated closing costs
- And more
In sum, loan estimates help homebuyers by providing an easy to understand data sheet which can be used as a point of reference when comparing loan offers. By comparing loan estimates from various lenders, homebuyers can assess total costs, APR rates and similarly pertinent factors.
The Closing Disclosure
The closing disclosure is the second set of TRID documents, and it effectively serves as the replacement for the Truth-In-Lending Statement and the HUD-1 Settlement Statement. In a nutshell, the closing disclosure gives homebuyers a final snapshot of the loan estimate three days prior to the loan’s scheduled closing. This document offers an easy snapshot of the final loan costs and the payment amount required upon the loan’s closing.
That way, homebuyers enjoy the opportunity to easily assess and spot any changes that deviate from the loan estimate. With the added simplification of the mortgage rules, homebuyers should expect a longer period to closing.
The new rule requires that the loan disclosure form must be received three days prior to closing, and any substantial change to the loan terms triggers an additional three-day review.
Examples of substantial changes that may trigger a three-day review include:
- A prepayment penalty is added to the loan’s terms
- The loan product itself changes (shifting from a fixed-rate to an adjustable-rate, for example)
- The APR increases by 1/8 of a percentage point for fixed-rate loans or 1/4 for adjustable loans (three-day notices have been required for changes of this nature since 2009, however)
Minor changes such as modifications to escrow will not trigger this new three-day review. Whether or not a three-day review triggers after making substantial changes, homebuyers can expect at least a 30 to 45 day closing process, but it may be longer.
As such, the new “Know Before You Owe’ rules certainly simplify mortgage paperwork, but homebuyers must still do their due diligence. Patient homebuyers who do their research and prepare for a lengthier closing process ultimately have reasons to be optimistic about the latest mortgage rule changes.
Movoto is a real estate agency dedicated to helping you find the perfect home. Part of that process is helping you discover information that simplifies the home buying experience. Movoto’s team of expert agents understand home buying from A to Z, so they can help get you into your dream home quicker and easier than you thought possible.
Author Bio:
Kelly McDonald: Vice President Sales
With a love of coaching and 20 years of history in sales, Kelly is the ideal person to lead the operation of our sales organization. She ensures that our sales teams have all the tools they need to help connect people with amazing agents. Kelly is also a council member of the Gerson Lehrman Group and a member of the National Association of Professional Women.
