Buying a home means a lot of complicated paperwork that usually includes terms and conditions that are difficult to understand. But a recent change to loan paperwork, announced by the Consumer Financial Protection Bureau at the end of 2013, is due to roll out in August of 2015.
Standardized, redesigned forms will give you a clearer picture of the terms of your mortgage and will help you make a more informed decision when buying a house. Read on to find out what these changes entail and how they will help you as a borrower.
The Problem
Transparency is a critical part of the home buying process, yet so much paperwork associated with buying a house is incredibly complicated and confusing, with no clear benefit. Everyone loses if borrowers don’t understand whether or not they will be able to pay back their home loans, so simpler forms benefit everyone. With this in mind, mortgage forms have been redesigned to help borrowers understand key information about the terms of their mortgages.
Anyone who applies for a loan today gets a Good Faith Estimate and a Truth-in-Lending Disclosure. The new Loan Estimate form is replacing these two forms. The new Closing Disclosure form replaces the current HUD-1 Settlement Statement and final Truth-in-Lending Statement. These forms will be the standard beginning on August 1, 2015. Lenders will be required to give borrowers the Loan Estimate three business days after the loan application is submitted, and the Closing Disclosure must be given three business days before the buyer becomes contractually obligated to the lender (commonly a home’s closing). These time periods are designed to give the borrower adequate time to understand a loan’s terms.
Loan Estimate Form
According to the Consumer Financial Protection Bureau, the Loan Estimate form helps buyers understand the “features, costs, and risks of the mortgage loan for which they are applying” (TILA-RESPA Integrated Disclosure Rule, 11). In short, it will be easier for the consumer to understand if he or she can afford the loan asked for and to compare different loan offers.
The first page of the Loan Estimate form includes a loan terms table, a projected payments table, and a loan closing costs table. The second page of the form includes an itemization of loan costs and other costs associated with the loan, a table that shows how much cash is needed for closing, and tables detailing costs for transactions with adjustable monthly payments or adjustable interest rates. The third page of the form includes a comparisons table and any other relevant considerations.
Closing Disclosure Form
A second form, the Closing Disclosure form, is for loans that require a Loan Estimate and then actually proceed to closing. This form details the finalized terms and costs of the loan.
The first page contains much of the same information that the Loan Estimate form does, but it is more fine tuned: loan terms, projected payments, and closing costs associated with the loan. The second page contains both loan costs and other costs, and the third page contains a calculation of cash needed to close and a summary of transactions, among other things. Other pages contain adjustable payment and adjustable interest rate tables as well as loan calculations, including the total number of payments, finance charge, amount financed, annual percentage rate, and total interest percentage.
Ideally, the way this new information is laid out will make understanding the exact terms, payments, and total cost of a home loan much easier to understand.
Nice newsletter. Good article. Good information. Thank you. Carol
For conventional financing, borrowers with scores at 740 or anywhere above generally receive the same loan pricing (rate and cost). That being said, the better your credit the higher your chances of receiving loan approval with high debt to income (up to 50%) or high loan to value (up to 95%) which can be a major benefit when applying for a new loan. For Jumbo financing, borrowers with credit scores above 800 are generally rewarded with both better pricing and easier guidelines. There are no situations where better credit is a negative when obtaining new financing so we should all continue to strive to reach and then stay in the 800’s.
What are the advantages of a score over 800
Thank you Mike for this information. As a residential realtor the information that you provide is crucial to a successful transaction for my clients. You are indeed a pleasure to recommend to all of my clients. You are so professional, thorough, conscientious and pleasant to work with. !!
Hi Dane! Wanted to make sure I'm clear on this. Am I right in saying that on whichever remodel is done you still take a loss rather than an increase in value - the ROI will never exceed 100% of cost?