New Mortgage Disclosures

As of October 3, 2015, anyone purchasing property will get easier-to-understand disclosure papers for their mortgage.

Gone are the Good Faith Estimate, HUD-1 settlement statement, and 2 Truth in Lending Act disclosures. Those 4 documents are replaced by 2: the Loan Estimate and the Closing Disclosure.

Better disclosures

The new disclosures reflect a big improvement. They’re user-friendly and straightforward.

Here is a wider-lens view of this change:

A good change, but not perfect

Overall, the new disclosures, and the rules that accompany them, will benefit borrowers. But the rules introduce potential problems, too.

The new disclosures are a product of the Dodd-Frank Act, which sought to reduce the number of disclosures that mortgage borrowers get by integrating paperwork required under 2 laws: the Real Estate Settlement Procedures Act and the Truth in Lending Act.

Timing of disclosures

  • You get the Loan Estimate within 3 days of applying for a mortgage.
  • You get the Closing Disclosure 3 days before your scheduled closing date.

Comparing offers

The most useful section of the Loan Estimate is the part on Page 3 that discloses how much the mortgage will cost in the first 5 years and how much principal will be paid in the first 5 years. When you apply for 2 or more loans and compare these numbers, you’ll have a pretty good idea of which loan is the best for you.

Why closing delays will happen

A new rule will delay some closings and even cause some real-estate deals to blow up. It’s the rule that requires a 3-day waiting period after you get the Closing Disclosure.

It’s not rare to have last-minute changes in mortgages; in the last 2 or 3 days. Until now, those changes didn’t necessarily delay closings. Starting October 3, 2015, late changes could cause delays in closings because a substantial change requires the lender to issue a new Closing Disclosure — and with each new Closing Disclosure, the 3-day waiting period begins anew. You, the borrower, can’t waive it. You have to wait it out.

An example of what could happen

The loan officer will tell you to refrain from opening new lines of credit while you’re waiting to close on the mortgage. Heed this advice. If you do apply for credit to buy appliances or furniture, your credit score will fall a few points.

A lower credit score is important, because the lender will check your credit score shortly before the closing date. And if your score falls enough, the lender might charge you a higher interest rate. Let’s say you receive this sad news just 2 days before closing. Guess what? You’ll get a new Closing Disclosure with the higher rate, along with a 3-day waiting period. Your closing date is pushed back at least 1 day.

Delays that aren’t your fault

Even if your purchase goes smoothly, you might exist in the middle of a chain of people buying and selling houses. If 1 of those buyers faces a delay, your deal could be delayed, too — even if that person is several links away from you in the chain.

What you can do

Because of the possibility of delays, here are some things to do or consider doing:

  • Have a rate lock that extends a week or 2 past your scheduled closing date. Ask your lender for advice on the rate lock.
  • If you’re a renter, don’t schedule a closing date on the last day of your lease. Have a rental home to go to if your closing is delayed a few days.
  • Ask the moving company about its policy for handling delays.
  • If you’re a seller, take care of repair contingencies quickly. If you’re a buyer, make sure repairs are done well before the closing date.

To read this article on Bankrate, click HERE