New Rules Give Home Buyers More Time To Review Loans

For those who have gone through the long and often stressful process of getting a mortgage, you are likely familiar with the seemingly never-ending stack of papers you’re required to sign on or right before your closing date. Sometimes buyers at the closing table may be faced with small changes that have been made to their loan terms, and oftentimes are pressured into making quick decisions. But new rules put in place by the Consumer Financial Protection Bureau that took effect October 3 aim to give buyers clearer information and more time before closing to review terms and ensure they aren’t surprised at the last minute. The new “Know Before You Owe” program also replaces the four previous disclosure documents (the Initial Truth-in-lending Disclosure, the Good Faith Estimate, the Final Truth-in-lending Disclosure, and the HUD-1 settlement) with just two documents (the Loan Estimate and the Closing Disclosure). Under the new rules, lenders will be required to:

• Provide the buyer a “Loan Estimate” document within three days of receiving the following information: Name, income, social security number, address of the home they hope to purchase, estimate of home’s value (sale price), amount they want to borrow. Buyers no longer need to provide income verification documents prior to receiving an estimate. This allows buyers to more quickly and easily get estimates from multiple lenders.
• Give buyers seven business days to review loan documents between the loan estimate and closing.
• Provide buyers a “Closing Disclosure” document at least three days before the transaction closes, outlining closing costs, monthly payments, and other financial details. This allows borrowers sufficient time to make sure the final loan terms match the information on the Loan Estimate.
• If significant changes are made to the loan transaction within the three days before closing, a new three-day review period is initiated.

Though the consolidation of closing documents intends to streamline the closing process and the new procedures provide borrowers with needed protections, they could also mean delays in the closing process. If any changes are made to loan documents or terms, such as switching from a fixed-rate to and adjustable-rate loan during the closing countdown, a new Closing Disclosure must be produced and the buyer’s three-day loan review period would reset. It may be a good idea to try to lock in mortgage rates for 60 days instead of the standard 30 days, in case of delay. For all of the details about the new mortgage rules click here.