One reason many potential homebuyers find mortgages to be intimidating is that lenders send them lengthy, complex “disclosure” forms that are confusing and hard to understand. This can make it more difficult to figure out exactly what you’re getting into, and whether one mortgage product is really better than another.
Now, the federal government is issuing new, simplified forms to make shopping for a mortgage easier.
The new forms will make it much less complicated to understand your costs and obligations, and to engage in comparison shopping.
In the past, mortgage applicants received two separate forms after applying for a loan – an early Truth in Lending Statement and a Good Faith Estimate. At closing, they got two more forms – a final Truth in Lending Statement and a HUD-1 Settlement Statement.
These forms were administered by two different federal agencies with different regulations, and they were often confusing and contained overlapping information. Buyers who got the settlement statement at closing sometimes didn’t fully understand it, but were reluctant to ask questions or challenge anything at the last moment with everyone already at the table.
Starting next August, though, the rules will change. Buyers who apply for a loan will get a single form, called a Loan Estimate. This form will clearly lay out the terms of the loan, and make it easy to compare the features of one loan to another.
The two closing forms will be replaced by a single form called a Closing Disclosure, which will provide a clear accounting of the transaction.
Further, the Closing Disclosure must be given to a buyer at least three business days before the actual closing. This will give buyers time to look it over and ask any questions, without feeling rushed or intimidated.
The new forms will be available in both English and Spanish.
The U.S. Consumer Financial Protection Bureau, which created the new forms, tested them with consumers and found that they improved buyers’ ability to compare different loans by as much as 42 percent.