The next time you apply for a mortgage, it may take a few extra days to close, but that isn’t necessarily a bad thing. The Know Before You Owe mortgage disclosure rule, which officially launched October 3, is designed to slow down the financing process so you have more time to digest the financial commitment you’re making and understand what you’re signing.
Two new documents put the breaks on the process when purchasing a home in Scottsdale or anywhere else. The first is the Loan Estimate form. After applying for a loan, the lender has three days to provide you with a Loan Estimate form detailing the transaction, including the estimated loan and closing costs. This form allows you to do an apples-to-apples comparison and makes shopping for the best loan easier.
You will have to sign the Loan Estimate form provided by the lender you choose before an appraisal is ordered and the loan process begins.
Then, at least three days before the closing, you will be provided with the Closing Disclosure form, giving you time to confirm whether the loan you are signing is what you expected, to ask questions, and to negotiate changes. Since the Loan Estimate and Closing Disclosure mirror each other, it should be evident if the deal you received is different from the one you were promised.
You can find samples of these new documents online plus additional information on Know Before You Owe here.
The new mortgage rule, created by the Consumer Financial Protection Bureau, is intended to protect borrowers from the predatory lending practices that led to the housing market crash in 2008. In the boom leading up to the crash, some lenders pushed subprime mortgages with high interest rates and hidden costs because they generated bigger fees.
Many of the borrowers who took out these loans didn’t understand them and couldn’t afford the payments. As a result, many of these loans led to foreclosures. Know Before You Owe mandates essential loan information is presented in consumer-friendly forms so that borrowers can better understand their financial commitments and not wind up defaulting.
All these changes may lead to more questions, and we're happy to answer them before, during, and after your real estate transaction.
