New mortgage disclosures help buyers "know before they owe"
A federal rule change aimed at simplifying the mortgage application process took effect in the fall of 2015. The resulting "Know Before You Owe" forms are now standard throughout the mortgage industry, making it easier for buyers to compare interest rates and fees when considering their options.
"We have been involved in many mortgage closings since the new regulations took effect, and they really do remove some of the guesswork for home buyers," said Eva Lee of Thrivent Federal Credit Union. She has helped members secure financing for their new homes during her more than 15 years in the industry.
As the home mortgage industry adapts to this new federal mandate, be prepared for a longer closing timeframe ranging up to 45 days.
With the rules change, home buyers receive a loan estimate within three days of supplying required information to their mortgage lender as part of the application process. The estimate includes:
- Expenses, with simple yes/no answers to questions the buyer may have about whether amounts can increase after closing, any prepayment penalties, what is included in escrow and more.
- Projected monthly payment, including taxes, insurance and other assessments.
- Estimated closing costs and how much cash may be required at closing.
- Information on certain services, such as pest inspections, survey fees and the appraisal.
The loan estimate form replaces the Good Faith Estimate and the initial Truth-in-Lending disclosure.
A closing disclosure form includes final figures for closing costs, prepaid taxes, insurance payments and other fees. What makes this form different is that the information is delivered to home buyers three days before the closing rather than when they sit down to sign final documents.
The closing disclosure form replaces the HUD-1 Settlement Statement and final Truth-in-Lending form. Lee said, "The documents may have changed, but we still walk our members through the entire process with service they appreciate and let them choose at their convenience where we will meet for the closing."