Mortgages are complex transactions
…that may include risky features. A rule has been created that will simplify and improve disclosure forms for mortgage transactions.
Consumers currently receive different, but overlapping federal disclosure forms with the terms and costs of mortgage loans. Because these forms are confusing for many people, Congress directed the Consumer Finance Bureau to create new forms. The rule replaces the current forms with two new forms: the Loan Estimate, given three business days after application, and the Closing Disclosure, given three business days before closing.
Lenders will be required to give consumers these forms for mortgage applications submitted on or after October 3, 2015. Specific benefits of the new forms and rules include:
- Combining several forms and additional statutory disclosure requirements into two forms. This will reduce paperwork and consumer confusion.
- Using clear language and design that will help consumers understand complicated mortgage loan and real estate transactions.
- Highlighting the information that has proven to be most important to consumers. On the new forms, the interest rate, monthly payments, and the total closing costs will be clearly presented on the first page. This will make it easier for consumers to compare mortgage loans and choose the one that is right for them.
- Providing more information about the costs of taxes and insurance and how the interest rate and payments may change in the future. This information will help consumers decide whether they can afford the mortgage loan and the home, now and in the future.
- Warning consumers about features they may want to avoid, like penalties for paying off the loan early or increases to the mortgage loan balance even if payments are made on time.
- Making the cost estimates consumers receive for services required to close a mortgage loan more reliable, for example, appraisal or pest inspection fees. The rule prohibits increases in charges from lenders, their affiliates, and for services for which the lender does not permit the consumer to shop unless a specific exception applies. Examples of the specific exceptions include when information provided by a consumer at application was inaccurate or becomes inaccurate, or when the consumer asks for a change in the services.
- Requiring that consumers receive the Closing Disclosure at least three business days before closing on the mortgage loan. Currently, consumers often receive this information at closing or shortly before closing. This additional time will allow consumers to compare the final terms and costs to the terms and costs they received in the estimate. That will better equip them to raise any questions before they go to the closing table.
What type of real estate purchase is not affected? HELOC – Home Equity Line of Credit, reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property are generally not affected by the new loan rules.
I NEED MORE INFO!
Your real estate sales professional will know and understand TILA-RESPA Integrated Disclosure rule implementation. Ask your agent to help you.
However, if you’re purchasing as a For Sale By Owner – FSBO, it’s more likely you won’t have the opportunity for support a professional real estate agent will provide. Find more info here:
- Consumer Financial Protection Bureau “TRID Official Ruling“
- Always be prepared. Whether you are working with a real estate pro or not, it’s smart to preview the new forms.
- The rule with links to the posting on the Federal Registry.