Four ways new rules make homebuying better for consumers
By Erik J. Martin
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Big changes to lending rules in the wake of the foreclosure crisis appear to be doing their job: making the cost and terms of mortgage loans and the home purchasing process much more clear to home buyers.
The legislation — TILA-RESPA Integrated Disclosure, or TRID — went into effect last October. Better known as “Know Before You Owe,” the new rules include a series of disclosure forms designed to make it more clear to consumers what they’re getting into with a loan.
Two new “Know Before You Owe” forms replace three old ones: the Good Faith Estimate, a HUD-1 Settlement Statement and a Truth in Lending disclosure. Instead, the new Loan Estimate and a Closing Disclosure form sum up every aspect of the mortgage transaction.
Buyers receive the Loan Estimate shortly after applying for a mortgage and can use the document to shop and compare loans. The Closing Disclosure must be in the purchaser’s hands three business days before the loan and purchase close, allowing the customer time to ask questions.
The good news: a significantly higher percentage of homebuyers now actually read their loan documents prior to closing.
Some 92 percent of polled buyers now say they review their closing documents in advance of settlement. Just 74 percent did so before the simpler documents were available, according to a survey by the American Land Title Association.
Fears that the new rules would significantly delay closings appear to have been exaggerated.
A survey by San Diego technology and data company ClosingCorp also found homebuyers generally pleased with the new process. Some 68 percent said that the new forms “did a better job preparing them for the closing costs they would have to pay;” 63 percent said the new forms were easier to understand; 65 percent said costs and fees are now “explained better.”
Professionals who have worked closely with the documents and closings acknowledge “Know Before You Owe” has changed home buying for the better for buyers. Among the benefits:
- More transparency
Lenders are now solely liable for errors and incorrect fees, points out Daniel P. Hodin, attorney with Presidential Title, Bethesda, Maryland. “Lenders must provide final figures, rates and terms three days before closing, giving the consumer time to review, understand, compare and correct, if necessary.”
- Easier cost comparisons
The Loan Estimate form breaks out specific costs and rates, making it far easier for consumers to compare costs for third-party service providers, including the title company, inspector and property attorney. “This can save them money, often hundreds, and in some cases, thousands of dollars,” says Dave Petro, senior vice president for ClosingCorp. Petro said more than half — 55 percent — of homebuyers polled by ClosingCorp. said they had saved money thanks to comparison shopping using the new form.
- Fewer surprises
When customers understand the costs and fees they’ll face at closing they can budget for those costs in advance, Petro points out. And there’s less chance that revised prices make a sudden appearance. “The new rules severely limit the changed conditions that can increase fees from the time they are estimated until the closing,” he said.
- Smoother process
The legislation nudged lenders and settlement services to automate estimating and closing processes in order to save time and money. “The industry has progressed technologically and professionally,” says Presidential Title’s Hodin.
Wayne Stanley, ALTA director of public affairs, believes it’s too early to fully gauge the success of “Know Before You Owe.” Some kinks still need to be worked out, he says, including the calculation for title insurance fees.
“Home buyers are taking more time to review their forms, which is important. However, we don’t know if consumer understanding of their transaction and the closing process is getting better,” says Stanley. “We will continue to test this.”
First-time home buyer? Study up!
- Learn more about ‘Know Before You Owe’:
www.consumerfinance.gov/know-before-you-owe
- See a sample Loan Estimate:
http://www.consumerfinance.gov/owning-a-home/loan-estimate/
- See a sample Closing Disclosure:
http://www.consumerfinance.gov/owning-a-home/closing-disclosure/
- Download a tool kit:
http://files.consumerfinance.gov/f/201503_cfpb_your-home-loan-toolkit-web.pdf
- Explore the home buying process:
http://www.consumerfinance.gov/owning-a-home/
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