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New disclosures aim to give home buyers better information.

Buying a home is one of the largest financial transactions the average American gets involved in. In addition, they usually only get involved in such a large transaction a handful of times in their lives, which makes these situations a prime target for unethical dealings. Of course, the first step is to deal with a reputable real estate professional that can help you navigate these choppy waters, but in addition, the U.S. government is instituting new rules to help better inform home loan applicants of exactly what they’re getting into. However, these new regulations will have an impact when it comes to closing time, so let’s walk through the new regulations.

Background:

There are 2 main regulations that are meant to protect home financing customers:

  • The Truth in Lending Act, also known as TILA or Regulation Z, was created in 1968 to establish a standard in the way mortgage fees and terms are calculated and disclosed.
  • The Real Estate Settlement Procedures Act, also known as RESPA or Regulation X, was passed in 1974 to protect customers from inflated real estate transaction costs that came about by lenders, agents, title companies, attorneys and others paying each other referral fees.

In addition, following the financial crisis of 2007-2008, Congress created the Consumer Financial Protection Bureau (CFPB) to consolidate all the consumer financial protections under one unit for more efficient enforcement. The CFPB is combining the disclosures required in these previous laws into the not so easily named TILA-RESPA Integrated Disclosure Rule, or TRID for short.

These new disclosures present the information in an easier to understand format, but they can make the entire closing process slower.

The New Rules:

Currently, home loan customers receive 2 sets of disclosures, one at the beginning of the loan process and one at the end.

  • The lender is required to send you a Good Faith Estimate as well as an Initial Truth In Lending disclosure within 3 days of applying for a home loan. These show you your quoted loan rate, as well as the fees, terms and costs associated with the loan.
  • Before closing, the lender must also give you what’s called a HUD-1. This is a breakdown of all the fees required for the transaction, including the final cash needed to close. In addition, you’ll receive a final Truth in Lending disclosure so that you can compare it to the one you saw in the beginning. However, while this must technically be given to you before closing, it’s generally given on the same day, just before closing.

The CFPB deemed the current process too confusing and intimating because the customer may not have time to fully digest the disclosures or might not feel comfortable disputing on the day of closing.

Therefore, the new rules dictate not only a different timeline for the disclosures, but a new, uniform format to make them easy to compare.

  • Within three days of applying for a new home loan, you’ll receive a Loan Estimate Form, which will provide a breakdown of the loan rate and fees. The lender must then receive your permission to move forward before they can continue the loan process.
  • At least three days before closing, the lender will also send you a Closing Disclosure Form. The new form will look very similar to the Loan Estimate Form, but also makes clear which costs are paid by the home buyer, the home seller, or other third parties.

This all means that you’ll receive the information in a similar, easy to understand format with the time available before closing to digest it. However, this extra time, while intended to be a consumer protection, can add extra time to the closing process, making a quick closing more difficult. If you have any questions about the process, your real estate professional can help answer any questions.

 

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1110 Tuscarawas Avenue NW

New Philadelphia, Ohio 44663

Phone: (330) 364-6648

Fax: (330) 364-2355

email: makethecall@mcinturfrealty.net