Since the financial crisis of 2008, which many experts blamed in large part to lax mortgage lending practices (among other financial shenanigans), the rules for getting a home mortgage have tightened up quite a bit. In 2016, even more changes will ensure that borrowers get the best information available prior to signing on the dotted line.
The Consumer Finance Protection Board (CFPB) created the rules sometimes referred to as the “ability to pay” or “know before you owe” rules. The rules are designed to make sure a borrower can afford the home loan they are about to receive. It also encourages lenders to make only “qualified mortgages” that meet certain risk requirements.
Simplify with Fewer Forms
The first change borrowers may notice is fewer forms to review at closing. Not only are there fewer forms, the new forms are easier to understand and use. Two new forms, the Loan Estimate (LE) and the Closing Disclosure (CD), will replace the four disclosure forms previously required.
The forms no longer in use include:
- Good Faith Estimate
- Initial Truth-in-Lending disclosure provided when you apply for a loan
- HUD-1 Settlement Statement
- Final Truth-in-Lending form issued just before closing
In addition to new forms that are easier to understand, consumers will have more time to review the forms prior to closing. Under the old system, borrowers often only saw many of the documents related to their mortgage loan at the closing table the day of the sale. Under the new rules, lenders will provide copies of the LE and the CD three days in advance of the closing, allowing the borrower time to closely examine all the information, thus avoiding any surprises at closing.
The LE will include the interest rates, the fees for both buyer and seller, estimated closing costs and whether the borrower has the right to shop for services like title insurance. This form will also include vital information like if there are any prepayment penalties or future expected changes in interest rates. The CE will reflect the final figures for closing costs, prepaid taxes and insurance, payments, fees and mortgage terms, plus what costs buyer and seller each must pay.
Perhaps one of the best changes is new online resource center for borrowers. It provides clear, unbiased tools like calculators and worksheets that will help you research the entire mortgage process independently, instead of using your lenders tools. Information available on the website also includes checklists, guides, and other tools to help buyers better understand the entire home loan process.
All in all, the new rules around mortgages should help homebuyers more easily navigate the mortgage loan process. We recommend finding a mortgage lender you trust and building a relationship with that lender early in your home buying journey. With a strong relationship, you’ll have an easier time navigating the new mortgage rule processes and getting the best mortgage for your family. If you are looking to buy or sell a home in Iowa City or the surrounding areas, contact the expert real estate agents at The Johnson Team.