Monday, December 28, 2015

MORTGAGE APPLICANTS: School up on the new forms for 2016

If you're among the lucky few who will pay all cash for your home, you can stop reading right now! If you are among the many who will be taking out a mortgage loan, however, and who may have read home buying articles that stated the required forms included a HUD-1 Settlement Statement, a Good Faith Estimate, and a Truth-in-Lending disclosure form, keep reading.

These forms will no longer be used for borrowers who submit a mortgage application on or after October 3, 2015 (this date was extended from August 1, 2015). Hopefully, the change will be for the better. It's a move meant to simplify matters for consumers, consolidating the information conveyed and highlighting the significance of important loan terms.

The replacement forms will include  a "Loan Estimate" and a "Closing Disclosure." They were created by the Consumer Financial Protection Bureau,  after a long process of several years gathering input from consumers and real-estate industry groups.

  • The Loan Estimate: This form will be provided to consumers within three business days after they submit a loan application. It replaces the early Truth in Lending statement and the Good Faith Estimate, and provides a summary of the key loan terms and estimated loan and closing costs. Consumers can use this new form to compare the costs and features of different loans.

The second form, the "Closing Disclosure," will come your way three business days before your close of escrow. Its purpose is to provide a more final accounting of the transaction, covering the same terms, but with exact statements of costs and required cash.

  • The Closing Disclosure: Consumers will receive this form three business days before closing on a loan. It replaces the final Truth in Lending statement and the HUD-1 settlement statement, and provides a detailed accounting of the transaction.

It’s still early as we’re only a few months into the new process and forms used by mortgage lenders.  However, if you are going to obtain a mortgage to purchase a home, it’s a good idea to review the new Loan Estimate and Closing Disclosure forms as you will see these for any mortgage in 2016 and the foreseeable future.