Closing on a home can be a confusing and flustering experience,
especially for first-time home buyers. But new rules going into effect
during the weekend aim to give buyers breathing room.
Starting
Saturday, home buyers will have access to new standardized forms to
replace ones that might have varied widely from lender to lender. The
new forms are supposed to make it easier for people to
understand their interest rate, what they owe and how much they need to
pay up front.
Borrowers will also get at least three days to
review the loan before they close on the mortgage. Currently they can
make changes even on closing day and still complete the sale. (The rules
will go into effect during the weekend, but housing pros say they will
be enforced starting Monday.)
The new rules were mandated by the Consumer Financial Protection Bureau to
cut down on the issues that came up during the financial crisis, when
many buyers lost their homes after signing up for complicated
mortgages they didn’t fully understand.
“People may have missed,
in essence, the fine print around what really they were signing up for,”
said Terry Moore, senior managing director at Accenture Credit
Services. With the new rules, buyers should have a better grasp of what
rate they are paying and how much their mortgage will cost them.
Instead
of getting as many as four disclosure forms when applying for and
closing on a mortgage, consumers should now get two, simpler forms. One
is the loan estimate,
which should break out the total loan amount, the estimated monthly
payment and the amount of cash needed to close. The second form is
called the closing disclosure,
which should be provided three days before closing and should help
borrowers see how the loan may have changed since they received their
initial estimates.
The three-day time window, which is another
major change in the closing process, is meant to give buyers more
time to review loans closely and make sure they understand what they’re
signing up for, brokers said. “In the past, it has happened where they
get the document and they don’t have the time to go through it,” said
Will Wiard, a real estate broker in the Washington area.
Buyers
should use the three-day window to double-check the details of their
loans. For example, buyers should look at their total loan amount and
interest rate, Moore said. They should also review how much cash they’ll
need to provide up front and ask their lender to explain any increase
in closing costs. Buyers should double-check that monthly payments will
be what they expected. And they should watch for more complicated loan
features, such as whether there is a prepayment penalty, Moore said.
While
the new rules are supposed to make the closing process easier for home
buyers, experts warn that they should expect delays. The rules could
extend the overall time it takes to close on a sale, Wiard said. For
instance, someone who requests a change to their loan during the
three-day period, such as adjusting the closing costs, may then need to
wait another three days before they can close on the sale.
