June 17, 2015
On August 1, 2015, new federal laws will require changes to loan information disclosures that are designed to make borrowers more fully informed. The new requirements affect FHA, VA, conventional and any other type of mortgage loan.
The new requirements, announced by the Consumer Financial Protection Bureau, “…will simplify and improve disclosure forms for mortgage transactions. Consumers currently receive different, but overlapping federal disclosure forms with the terms and costs of mortgage loans.” That overlap proves confusing for borrowers, especially those who have never purchased or refinanced a home loan before.
Two new forms replace the set of previously required disclosures. According to CFPB.gov, these new forms are, “the Loan Estimate, given three business days after application, and the Closing Disclosure, given three business days before closing.”
CFPB says all lenders will be required to give applicants these new forms for mortgage applications that are submitted on or after August 1, 2015. CFPB’s press release on these new requirements includes a list of benefits that come with new new forms that includes the following:
Combining several forms and additional statutory disclosure requirements into two forms. This will reduce paperwork and consumer confusion.
Using clear language and design that will help consumers understand complicated mortgage loan and real estate transactions.
Highlighting the information that has proven to be most important to consumers. On the new forms, the interest rate, monthly payments, and the total closing costs will be clearly presented on the first page. This will make it easier for consumers to compare mortgage loans and choose the one that is right for them.
Providing more information about the costs of taxes and insurance and how the interest rate 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.
Warning 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.
Making the cost estimates consumers receive for services required to close a mortgage loan more reliable, for example, appraisal or pest inspection fees. The rule prohibits increases in charges from lenders, their affiliates, and for services for which the lender does not permit the consumer to shop unless a specific exception applies.
Theses changes mean you can be a more informed consumer, but it’s important to carefully review all your loan documents to make sure all terms are fully understood. The new forms help do that, but the borrower is still required to look them over–some news headlines complain that these new forms may delay closing by as long as a week so consumers have time to carefully read the paperwork, but knowing that in advance can help you work out the scheduling of your closing date and take full advantage of the new, clarified disclosure requirements.
Learn more about the new disclosure requirements with this PDF download from the CFPB official site.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are reviewed before they can appear on the site.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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