Buying a home can be exciting, but there are many important decisions to make - like getting a home loan.
The Consumer Financial Protection Bureau has made changes to simplify things for you, so it’s easy to compare the cost of home loans from different lender, and it makes the terms of your new mortgage easier to understand.
All the mortgage loan details that will be most helpful have been included in two straightforward forms – the Loan Estimate, and the Closing Disclosure. These forms are used for loans for the purpose of purchases, refinances, construction or home equity loans.
When you apply for a loan, certain information is needed - such as your name, income, Social Security number, the address and estimated value of the home, and the amount of money you would like to borrow.
Once all of the information is received, lenders are required to provide you with a Loan Estimate within three business days.
The estimate includes helpful, easy-to-find information such as the loan interest rate, monthly payments and total closing costs, as well as estimated taxes and insurance.
It also contains information about whether or not the interest rate or payments could change in the future, and if there is a prepayment penalty.
You can use this information to see what your estimated costs will be and to easily compare these costs to loan estimates from other lenders. The forms from all lenders are the same so you’ll know where to look for the numbers.
After choosing your lender and being approved for your loan, the lender will gather the final loan and settlement costs for you. A Closing Disclosure form will be provided at least three business days prior to your closing date, or the date you become contractually obligated for the loan.
The Closing Disclosure uses the same format as the Loan Estimate so it’s easy to compare numbers and see if there have been any changes from the estimate.
Be sure to review the disclosure and ask any questions you might have before the official closing date.
It’s important to note that any major changes to the loan, such as the interest rate, prepayment penalties, or a change to the loan features, will require your lender to issue a new Closing Disclosure. This automatically triggers a new 3-business-day review period, which is required. This could mean a delay in the closing date for your new home.
There are some things you can do to speed the process to help avoid delays.
Be ready to supply the necessary information when asking for a Loan Estimate.
Remember that the 3-day delivery period does not begin until all required information is received by the lender.
Carefully review your Loan Estimate and Closing Disclosure as soon as they are provided to you. Talk to your lender right away if you have any questions.
The new Loan Estimate and Closing Disclosure forms will make your home-buying terms and costs easier to understand. Be sure to ask your lender for assistance throughout the home-buying process so you know what to expect, now - and in the future.
