Buying a home is an exciting time. If you’re getting a mortgage to help pay for it, you’ll need to navigate the mortgage process, which can be challenging for many homebuyers. However, the Consumer Financial Protection Bureau (CFPB) is working to change that.
What Changes Are Being Made to the Process of Financing a Home?
If you applied for a mortgage prior to Oct. 3, 2015, you received two mortgage forms upon applying:
- A truth in lending disclosure (TIL)
- A good faith estimate (GFE)
At or shortly before closing, you received a second TIL and a HUD-1 Settlement Statement.
After years of using this system, the government realized that these mortgage forms might be making the mortgage process more complicated than necessary. As a result, Congress passed an act that established the CFPB and requires the mortgage forms and regulations to be streamlined.
As of Oct. 3, 2015, the resulting regulation, the TILA-RESPA Integrated Disclosure rule, gives borrowers enhanced tools and protections to help increase their mortgage literacy. If you’re planning to buy a home, here’s how the rule might affect you:
1. You’ll Have More Information When You Apply for a Mortgage to Finance Your Home
Rather than give you a TIL and GFE, lenders will provide you with a loan estimate form within three business days of when you submit your mortgage application. “It will include information about the features, costs, and risks associated with the loan, with the idea that you will be able to get a better understanding of the real cost of the loan,” says Andrew Morgan, mortgage compliance manager at Regions Bank.
The loan estimate also will facilitate mortgage shopping. “You will be able to take that form and use it to compare costs with lenders,” Morgan says.
2. You’ll Receive Better Information Before You Close on a Home Mortgage
Instead of receiving a final TIL and HUD-1 prior to closing, you’ll receive a closing disclosure that reiterates the final comprehensive cost of the loan. “The closing disclosure details the transaction between the borrower and the lender, down to the penny,” Morgan says.
A key feature of the new mortgage form is its timeline. “Under the original system, the HUD-1 form was often going back and forth between the lender and the closing agent five minutes before closing,” he says. “The new closing disclosure has to be given to the borrower three days before closing so they have time to review it and digest the information in it.”
Keep in mind that if there are any last-minute changes or delays — with the lender, the title company, etc. — your closing date could be impacted, Morgan says.
Peace of Mind When Financing a Home
Ultimately, the real benefit of the new rule is peace of mind. “What the CFPB is trying to do is create forms that are easier to read and easier to understand so consumers have a better understanding of what they’re getting into,” Morgan says.