On August 1, 2015, loan documents to homebuyers are going to be simpler and easier to understand. Two new forms, a Loan Estimate and a Closing Disclosure, will replace the HUD-1 Settlement Statement, the Good Faith Estimate, and the Truth-in-Lending disclosure form.
The purpose of the new forms is to simplify closing information and make it simpler for consumers to compare their estimated costs to final costs.
Created by the Consumer Financial Protection Bureau [CFPB] with input from consumers and industry groups such as the NAR, the new forms will hold lenders to three-day deadlines so that consumers will have the information they need well before closing.
The three-day rule applies to both the Loan Estimate and the Closing Disclosure. Buyers should receive the former three days after applying for a loan and the latter three days before closing. Buyers should take this time to look carefully for any changes between the Loan Estimate and the Closing Disclosure.
Consumers will have a more transparent experience, including less obfuscating jargon and greater clarity concerning closing costs. On the new forms, the interest rate, monthly payments, and the total closing costs will be clearly presented on the first page, making it easier to compare mortgage loans and choose the one that is right for them.
Important information will also be highlighted, including the costs of taxes and insurance and how interest rates and payments may change in the future. This information will help consumers decide whether they can afford the mortgage loan and the home, now and in the future.
The new forms also warn consumers about features they may want to avoid, like penalties for paying off the loan early or increases to the mortgage loan balance even if payments are made on time.
Consumers will appreciate that the first pages of the new Loan Estimate and the new Closing Disclosure look the same, so they can more easily compare costs. If discrepancies are found, consumers can contact their real estate agents or their lenders for more information.