Know Before You Owe


Know Before You Owe: New Mortgage Disclosures, New Rule

New Mortgage Disclosures, New Rule

Today, the process of getting a mortgage is easier to understand because the Know Before You Owe mortgage disclosure rule is now in effect. The disclosures required for getting most mortgages have been redesigned to help you shop around to compare offers and find the loan that’s the best for you. We’ve also required lenders to give you more time to review the terms of your mortgage before accepting them, so that you can ask questions of your lender or seek advice from a housing counselor or lawyer.

You can learn more about this rule at consumerfinance.gov/knowbeforeyouowe.

We’ve put together some frequently asked questions about the new rule and how it will make the mortgage process easier for you.

What happened?

If you apply for a mortgage on or after October 3, our new disclosures are required for most mortgages. For most kinds of mortgages, you will have three business days to review your Closing Disclosure before you close. This rule is a part of our Bureau-wide Know Before You Owe mortgage initiative. We are working to make the costs and risks of financial products and services clearer, so you can make better, more informed decisions.

What’s the rule?

The Know Before You Owe mortgage disclosure rule, which was mandated by the Dodd-Frank Act, combines the required federal disclosures for most mortgages. It also requires lenders to give you your Closing Disclosure three business days before you close. This three-day period gives you time to understand the terms of your loan, compare it to the Loan Estimate you were given, and ask your advisors or lender any questions.

What are the disclosures?

The disclosures are forms that you get when you work with a lender to get a mortgage. These forms are required to help you understand the terms of your mortgage before accepting them. If you applied for a mortgage before October 3, 2015, you would have received a Good Faith Estimate and an initial Truth-in-Lending disclosure. Now, for most mortgages, you will get a Loan Estimate within three business days of submitting an application. At least three business days before you close, you will also get a Closing Disclosure. It contains a summary of the final terms of your loan. This form replaces the HUD-1 Settlement Statement and final Truth-in-Lending disclosure forms for most mortgages.

Why did you change the forms?

For more than 30 years, federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage and two different disclosure forms to consumers before they close on a mortgage. Two different agencies developed these forms since Congress first mandated them, and they had a lot of overlapping information. The two new forms, the Loan Estimate and the Closing Disclosure, combine information and mirror each other, so you can easily compare the terms you were given on the Loan Estimate with the terms on the Closing Disclosure. We tested them with consumers, lenders, and other mortgage professionals and found that the new forms help people better understand their mortgage terms and make it easier for people to find the information they need.

Will this rule delay my closing?

For most situations, the answers is no. The rule gives you three business days to review your Closing Disclosure and check it against your Loan Estimate to ensure that the deal you were proposed in the estimate is the deal you are getting. Our research found that, prior to this rule, consumers felt there wasn’t enough time to review their documents, so the rule gives you time to ensure you feel comfortable before you sign on the dotted line for your mortgage. Only where three very important things change about your loan after you get your Closing Disclosure does the rule require a second three-day review period. Minor, ordinary changes do not require an additional three-day review period.

This is a lot of information. How can I learn more about the mortgage process?

We know the prospect of getting a mortgage can seem very confusing, but we have a lot of resources that will help guide you through the process.

  1. We have a suite of tools and resources called “Owning a Home.” Here you will get step-by-step explanations of how to go about getting a mortgage and what to consider when making decisions. You’ll also find tools and resources to help you learn more about your options, make decisions, and prepare for closing.
  2. Your Home Loan Toolkit” is a downloadable booklet you can use to learn more about the mortgage process. It offers you easy to understand information, and gives you conversation starters to help you through key points in the mortgage process.
  3. When it’s time for you to get your Loan Estimate, we have a resource in “Owning a Home” that guides you through the form, page-by-page. We help you double-check the details and get definitions for unfamiliar terms. We have a similar resource for the Closing Disclosure.
  4. We also offer a tool to help you find a housing counselor. A housing counselor can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, usually at little or no cost to you.

If you have more questions, please visit consumerfinance.gov/knowbeforeyouowe where you’ll see all of our supporting documents, a timeline of our work on this project, and a video that explains the initiative. There are also answers to many detailed questions about the forms and the mortgage process in AskCFPB.

This post was originally published on the Consumer Finance Protection Bureau's blog. Link: http://www.consumerfinance.gov/blog/know-before-you-owe-new-mortgage-disclosures-new-rule/ Author: Diane Thompson

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Understanding the mortgage process: Your home loan toolkit

Understanding the mortgage process: Your home loan toolkit

The Know Before You Owe mortgage disclosure rule makes getting a mortgage easier for homebuyers and refinancers. It helps you shop for the loan that’s best for you and your family.

To help you navigate the steps you have to take to get a mortgage, take a look at our new booklet, “Your Home Loan Toolkit: A Step-By-Step Guide.” This consumer-friendly booklet can help you as you think about, apply for, and close on a mortgage. The toolkit helps you calculate how much you can afford for a home, gives you questions to ask your lender, and features worksheets and checklists to fill out during the process.

“Your Home Loan Toolkit” is a resource we revised to help make the mortgage process more understandable. Congress required us to revise an existing booklet, called the Settlement Costs Booklet or the Special Information Booklet, to include some additional information. We reviewed core concepts in the toolkit with recent homebuyers to make sure it would be useful and reduced it from 71 pages to 25. When we asked consumers about our new toolkit and whether they thought it was understandable and useful, almost all of them told us they liked the new toolkit.

You’ll get a copy of “Your Home Loan Toolkit” from your lender if you are using the loan to purchase a home

Lenders are required to give you the toolkit within three business days after you apply for a loan to buy a home. The toolkit is designed to be used with the Loan Estimate and Closing Disclosure, the two new disclosures that replace four overlapping mortgage forms for applications received on or after October 3, 2015.

You might see that a company has added its own logo to the cover of the toolkit. Companies and organizations are welcome to do this—please keep in mind that this doesn’t mean we’re endorsing that company or that we have screened the organization, their business, or the loans they might offer you.

Or, use “Your Home Loan Toolkit” whenever you start looking at mortgages

If you’re looking at mortgages, or deciding whether it’s the right time for you to buy a home, you might want to look over the toolkit today. It is filled with content that is helpful before you get to the application stage. It helps you determine how much of a monthly mortgage payment you can afford, explains how your credit affects the interest rate on your home loan, and gives you pointers on where to find more facts. You can download the toolkit. We also have a version in Spanish.

Visit Owning a Home for more detailed guidance and interactive tools

If you are looking for more information on navigating the mortgage process, visit “Owning a Home,” a digital suite of tools and resources where you can learn about loan options, explore interest rates, and print a user-friendly checklist to get you through the closing process.

This post was originally published on the Consumer Finance Protection Bureau's blog. Link: http://www.consumerfinance.gov/blog/understanding-the-mortgage-process-your-home-loan-toolkit/ Author: Laura Schlachtmeyer

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Know Before You Owe: Closing Disclosure

Loan Estimate blog

After you’ve shopped around for a mortgage and requested at least three Loan Estimates, compared the offers, and picked your loan, for most mortgages you’ll get a Closing Disclosure, at least three business days before closing.

The Closing Disclosure is a five-page form that helps you understand the key features, costs, and risks of your mortgage loan. If you applied for a loan on or after October 3, 2015, the Closing Disclosure will replace the HUD-1 Settlement Statement and Final Truth-In-Lending (TIL) forms for most mortgages.

The Closing Disclosure is a key part of our Know Before You Owe mortgage disclosure rule. To create this form we combined the two federal mortgage disclosures listed above. We tested this form with consumers and discussed the changes with industry. As part of the rule we also added new timing requirements, so you have time to review your loan terms. These changes make it easier to understand the terms of your mortgage before signing on the dotted line.

To help you understand your Closing Disclosure, we’ve created an interactive sample form. This resource helps you double-check the details and get definitions for unfamiliar terms. To make sure you’re prepared for closing, review your Closing Disclosure carefully and get our closing checklist, available in the “Owning a Home” suite of tools and resources for homebuyers.

When you’ll get your Closing Disclosure

During our work on the Know Before You Owe mortgage initiative, we reached out to loan officers, consumers, real estate professionals, and attorneys to learn about the process of closing. We learned that the documents are often hard to understand, overwhelming, and there isn’t enough time to review them.

Our rule requires lenders to send you the Closing Disclosure at least three business days before you finalize your loan. This gives you time to compare your Closing Disclosure to your Loan Estimate and ask your lender, your housing counselor, or your attorney any questions you may have.

More Resources

While our new forms are easier to understand, the mortgage process can be confusing and filled with complex terms. To help you navigate we’ve created a set of resources to help.

  • Interactive sample Closing Disclosure – Want to know where to find a particular fee, or how much money you will have to bring to the closing table? This interactive resource helps you understand the form. We’ve also made one for the Loan Estimate. These resources guide you through the forms by highlighting key information and defining terms.
  • Owning a Home” – This suite of tools and resources takes you through the process of buying a home. Here you will get detailed explanations of how to go about getting a mortgage and what to consider when making decisions. You’ll also find tools and resources to help you learn more about your options, make decisions, and prepare for closing.
  • Your Home Loan Toolkit” – This booklet has worksheets and conversation starters to help you navigate the mortgage process. You can fill it out on your computer or print a copy from our site.
  • Find a Housing Counselor – Housing counselors approved by the U.S. Department of Housing and Urban Development (HUD) can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, usually at little or no cost to you. Find a housing counselor near you with our search tool.

To learn more about the Closing Disclosure, visit consumerfinance.gov/knowbeforeyouowe. You can also learn more about the Loan Estimate on our blog.

This post was originally published on the Consumer Finance Protection Bureau's blog. Link: http://www.consumerfinance.gov/blog/know-before-you-owe-closing-disclosure/ Author: David Friend

Read more here.


Know Before You Owe: Loan Estimate

Loan Estimate blog

Our new Loan Estimate makes shopping for a mortgage easier than ever.

The new form is a part of our Know Before You Owe mortgage disclosure rule that is making the mortgage process work better for you.

The Loan Estimate uses clear language and design to help you understand the key features, costs, and risks of a loan offer you’ve received from a lender. The Dodd-Frank Act directed us to integrate two current forms consumers receive when applying for a mortgage: the Good Faith Estimate and the Initial Truth-in-Lending disclosure. The existing forms were developed by two different federal agencies under two different statutes.

We tested the Loan Estimate around the country, improved the design, and retested to see how effective we were. Starting in 2011 we took our proposed Loan Estimate on the road, gathering feedback to create our final Loan Estimate. We saw that people used the Loan Estimate to make trade-offs among closing costs, interest rate, and payments based on their personal situations. You can read more about this testing and its results in our 2012 report.

After we proposed the Loan Estimate, we did more testing. Here’s what we found:

  • Using the Loan Estimate, 99 percent of consumers tested could identify their loan amount, compared with 61 percent of those using the existing forms.
  • Of consumers tested, 90 percent could say when the interest rate could change when using the Loan Estimate, up from 81 percent of people using the existing forms.
  • When we asked whether settlement charges had changed from the Loan Estimate to a corresponding Closing Disclosure (our new form that updates the HUD-1 and Final Truth in Lending disclosure), far more people accurately noted changes with the new forms than with the current forms.

Shop Around

In January 2015, we released a report that found almost half of borrowers seriously consider only a single lender or broker before deciding where to apply for a mortgage. Our research showed that rates for a 30-year fixed rate conventional loan vary by more than half a percent. Getting a cheaper rate on a mortgage by that much means that borrowers who shop around can save money on their mortgage. The Loan Estimate is a great tool to help you shop around to find the best deal on your mortgage. You should get Loan Estimates from at least three lenders and compare them to find the loan that’s best for you and your family.

Remember, you are in control of the process and can pick the deal you decide is best. The new design makes it easier to compare your Loan Estimates to determine which lender is making the best offer. Requesting a Loan Estimate from multiple lenders is easy. You only have to provide the six key pieces of information:

  • your name,
  • your income,
  • your social security number (so the lender can pull a credit report),
  • the property address,
  • an estimate of the value of the property, and
  • the loan amount you want to borrow.

Although you’re not required to provide additional financial documents in order to get a Loan Estimate, it’s a good idea to share what you have with the lender. The more information the lender has, the more accurate your Loan Estimate will be.

More Resources

While our new forms are easier to understand, the mortgage process can be confusing and filled with complex terms. To help you navigate we’ve created a set of resources to help.

  • Interactive sample Loan Estimate – Want to know where to find a particular fee, or what your estimated monthly payment will be? This interactive resource helps you understand the form. We’ve also made another for the Closing Disclosure. These resources guide you through the forms by highlighting key information and defining terms.
  • Owning a Home” – This suite of tools and resources takes you through the process of buying a home. Here you will get detailed explanations of how to go about getting a mortgage and what to consider when making decisions. You’ll also find tools and resources to help you learn more about your options, make decisions, and prepare for closing.
  • Your Home Loan Toolkit” – This booklet has worksheets and conversation starters to help you navigate the mortgage process. You can fill it out on your computer or print a copy from our site.
  • Find a Housing Counselor – Housing counselors approved by the U.S. Department of Housing and Urban Development (HUD) can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, usually at little or no cost to you. Find a housing counselor near you with our search tool.

Learn more about the Loan Estimate at consumerfinance.gov/knowbeforeyouowe.

Stay tuned to our blog as we explain other aspects of the Know Before You Owe mortgage initiative, including an in-depth look at the Closing Disclosure.

This post was originally published on the Consumer Finance Protection Bureau's blog. Link: http://www.consumerfinance.gov/blog/know-before-you-owe-loan-estimate/ Author: David Friend

Read more here.