New forms seek to simplify mortgage loan process

Beginning Oct. 3, new mortgage loan consumers can get information about the specific costs of a mortgage loan in a new, streamlined format.

Once a mortgage lender knows six things — the borrower’s name, income, Social Security number, the address of the property, an estimate of the value of the property and the requested loan amount — the lender will issue a loan estimate to the borrower within three business days.

The new loan estimate consolidates both the preliminary Truth in Lending disclosure that was required under Regulation Z and the good faith estimate required by Regulation X. The overlapping regulations made both the Truth in Lending and good faith estimate forms too complicated for the average mortgage loan consumer, who might only take out a couple of mortgages in their lifetime.

The Consumer Financial Protection Bureau designed the new forms to help consumers easily understand their loan options, shop for the mortgage that best suits them and avoid any costly surprises at the closing table. The new loan estimate is a simpler form and is much easier for the average consumer to understand. The bureau has a “Know Before You Owe” initiative, and they were intent on reducing the confusion that a borrower might have when buying a home.

In addition to the loan estimate, the financial protection bureau decided to reinvent the traditional Housing and Urban Development settlement statement that was used in a mortgage loan closing and created a brand new closing disclosure. They once again were concerned that borrowers felt pressured to sign closing documents, even though last minute changes might have increased the cost of their loan.

To protect mortgage consumers and create more transparency, the closing disclosure has to be delivered to borrowers at least three business days before a loan closing. This time is designed to give the borrower sufficient time to review the document and ask questions.

The lender is responsible for documenting delivery or receipt; previously most lenders had relied on the title company to issue the final figures for a mortgage loan closing.

The Consumer Financial Protection Bureau’s goal was to take the complexity out of the documents that a consumer is presented with during a mortgage transaction.

The new loan estimate and closing disclosure fit the bill, allowing one to get loan fee information early in the process of buying a home.

Another welcome change to the loan estimate is that the forms now show the total estimated cash to close, which includes the down payment amount as well as the closing costs. In the past, the forms had plenty of closing fee information, but the required down payment for the loan was not included.

The bureau has sample loan estimate and closing disclosure documents online at consumerfinance.gov, along with many other helpful resources for mortgage consumers.

Buying a home is a wonderfully exciting time in your life, and using a local lender to guide you through that sometimes confusing process will ensure that your mortgage loan closing goes smoothly.

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