Most of us need to secure a mortgage when we purchase a home. During the process, there are disclosures we receive upon applying for a loan as well as when our mortgage officially closes. The Consumer Financial Protection Bureau (CFPB) has been working to create new, simplified “Know Before You Owe” home loan forms. These new disclosures will finally go into effect on August 1, 2015.
As part of an on-going retrofit of the residential mortgage industry, these revised documents are intended to improve both objectivity and transparency in residential lending. The hope is that they will eliminate many of the issues homeowners encountered during and after the financial crisis.
The latest forms include a Loan Estimate that replaces both the Good Faith Estimate (GFE) and Truth in Lending Disclosure (TIL), which evolved from the 1968 Truth in Lending Act. There is also a new Closing Disclosure that will supersede the HUD-1 Settlement Statement. Both new documents are more succinct than their predecessors, reducing the documents borrowers have to review and sign at closing as well as pertinent providing information homeowners should know about their loan.
What changes and information is included on these new “Know Before You Owe” forms?
Loan Estimate Disclosure Changes
- Combines the disclosures currently provided in the Good Faith Estimate and the initial Truth in Lending statement.
- Lenders must provide the Loan Estimate 3 business days after an application is submitted by a consumer.
- Provides information on the monthly principal and interest payment, projected payments over the term of the loan, estimated taxes and insurance, estimated closing costs and cash required to close.
- Provides a Rate Lock deadline.
- The Annual Percentage Rate (APR) of the loan
Closing Disclosure Form Changes
- Combines the disclosures in the HUD-1 settlement statement and any revised Truth in Lending statement. It is now a 5-page document versus the current 3 page document.
- The Closing Disclosure must be provided at least 3 business days before the closing.
- The new form includes much of the Truth in Lending information previously found in the TIL form.
- Outlines the fees and closing costs, adjustments and commissions charged to the buyer and seller. It also contains information on Cash to Close.
- Includes information on the escrow account
- Includes a summary of the loan terms, interest rate, total payments and APR.
All lenders will use these forms as of August 1st. For more information or to see examples of these new and improved forms, ask your lend or visit the CFPB.