Closing on a home can be exciting but also stressful for buyers, particularly those who are relying on financing. New rules aim to make sure buyers at least have a better understanding of the financial obligations they are signing up for when they take on a home loan.
New “Know Before You Owe” rules, which took effect Oct. 3, require lenders to provide borrowers with clearly laid out details on their loan and what it will cost them in an initial estimate and, closer to closing, a final summary. Borrowers also will have a minimum of three business days to review their final loan terms and fees before the transaction closes.
“It’s going to be easier to compare loan offers, and when you close it’s going to be easier to check to see if you’re getting the loan that you were promised,” said Holden Lewis, a mortgage analyst at Bankrate.com.
The new rules, put in place by the Consumer Financial Protection Bureau, also open the door to potential delays should factors such as a borrower’s credit score change near the closing date, forcing lenders to restart the loan disclosure process.
These tips will help you steer clear of problems:
UNDERSTAND THE CHANGES090
Instead of the “Truth In Lending” document and the “Good Faith Disclosure” previously required, borrowers will now receive a “Loan Estimate” and “Closing Disclosure.”
Lenders must give the Loan Estimate to consumers within three business days after they apply. The form lays out the details such as interest rate, loan term and other features.
The Closing Disclosure, which lenders must provide to borrowers at least three days before the transaction closes, includes closing costs, monthly payment and other details.
Lenders also must give borrowers at least seven business days to review their loan documents between the time they receive their loan estimate and the closing. And no changes can be made to the loan within the three-day period before the loan closes.
“The reason for that is to make sure the consumer isn’t hit with surprise last-minute changes they didn’t expect and suddenly be caught at the closing table with information they weren’t prepared for,” said David Stevens, president and CEO of the Mortgage Bankers Association.
AVOID CAUSING DELAYS
Making changes to loan terms after the closing countdown has begun could require lenders to draw up new disclosure documents and reset the loan review periods before closing.
That could cause delays of from 10 days to two weeks, depending on how quickly the lender can process the new loan estimate, estimates Stevens.
What kind of loan changes would require new disclosures? Switching from a fixed-rate to an adjustable-rate mortgage or an interest-only loan, for one. Or, a significant rise in interest rates — more than one-eighth of a percent for a fixed-rate loan or one-quarter of a percent for adjustable-rate loans.
Reduce the likelihood of delays further by avoiding these actions: applying for credit, closing out a credit card or going on a credit-spending spree before sealing the deal on a home. Those moves could change the homebuyer’s credit score from what it was at the time of the initial mortgage application, potentially knocking them into a higher interest rate.
ASK FOR A LONGER RATE LOCK
Lenders will typically freeze your interest rate for 30 or 60 days, if not longer. Borrowers should consider asking their lender to lock in their rate a week or two beyond their expected closing date. That can provide a time cushion in the event there’s a delay.
RETHINK THE ‘FINAL WALKTHROUGH’
Given that the new disclosure rules prohibit changes to the loan terms three days before closing, homebuyers should consider doing their final walkthrough of the property several days before they receive their closing disclosure.
Walkthroughs typically took place on the day before or the actual day of closing. But scheduling the walkthrough earlier will give borrowers time to address potential repairs or problems that haven’t been completed by the seller.
By ALEX VEIGA Associated Press OCTOBER 7, 2015 — 3:30PM