What to expect from changes to mortgage application process
If you applied for a mortgage and purchased a home before October 2015, you likely remember the overwhelming amount of loan paperwork you needed to complete and the sometimes confusing language in the documents. Many times the information on the forms overlapped or was not entirely clear, and the process seemed inefficient. If that was your experience, you’re not alone. At the end of the day, it appeared that not all borrowers were entirely confident that they understood the details of what was presented.
“Know Before You Owe”
The Consumer Financial Protection Bureau (CFPB) responded to concerns from homebuyers with the implementation of the TILA-RESPA Integrated Disclosure rule, which is often referred to as “TRID,” but more commonly known as the “Know Before You Owe” rule. This initiative was designed to empower consumers to make more informed mortgage decisions by simplifying the mortgage process.
Two significant changes
The Know Before You Owe Rule made two critical changes to the mortgage process:
First, it consolidated some of the required loan disclosures. The Good Faith Estimate and the initial Truth-in-Lending disclosure were combined to create the new Loan Estimate Form. Under the new rule, the mortgage lender must provide the applicant with a loan estimate, which includes loan terms, amount, payments, and rate, no later than three business days after the application is received. Also, the Closing Disclosure replaced the HUD-1 settlement statement and the Truth-in-Lending disclosure.
Second, it changes some of the timing in the mortgage process. The mortgage lender must now provide the Closing Disclosure to the borrower three business days prior to closing. These three days allow ample time for the borrower to review the loan terms, address any concerns, and make any necessary adjustments. In the case of any change to the document, however, a new Closing Disclosure must be delivered, and the three-day review window must be restarted, which could potentially delay your closing date.
An important step
The changes that accompany the Know Before You Owe rule bring greater clarity and transparency to a historically complicated process. Purchasing your dream home should be an exciting time and the mortgage process, even with all its complexities, shouldn’t dampen that spirit. It’s one of the biggest financial decisions you’ll make in your lifetime, so it’s important that you have a complete understanding of your agreement.