Ask any homeowner and they’ll agree: the worst part of buying a home is filling out the paperwork. According to some estimates, the average mortgage application file for U.S. homes has grown to 500 pages. Granted, buyers aren’t required to place their John Hancock on each and every page, but they “should” still read the pages to gain a better understanding of the mortgage. Thankfully, though, a set of new rules may make it easier for buyers to complete the mortgage application.
Effective October 3, 2015, mortgage companies must use two new disclosure forms in place of the four forms that were previously used. Created by the Consumer Financial Protection Bureau, these forms are intended to streamline the otherwise tedious process of applying for a mortgage by using clear, straight-to-the-point wording. This, of course, is in stark contrast to the forms that were previously used, as they contained extensive technical and legal jargon that was next-to-impossible for the average buyer to decipher.
Under this new law, mortgage companies will have three days from the time at which you apply for a mortgage to provide you with a loan estimate, which is one of the two new forms being introduced. The loan estimate states the mortgage amount, interest rate, closing costs, and terms of the mortgage. Furthermore, it also provides estimates on how much the mortgage will cost you over the next five years, as well as how much principle you will have paid off during this time.
The second form that’s being introduced under these new rules is a closing disclosure. Mortgage companies are required to provide buyers with this new closing disclosure within three days from their closing date as opposed to just 24 hours from the previous form.
The five-page closing disclosure form contains much of the same info that’s found on the new loan estimate form, including mortgage price, interest rate, terms, etc.
So, what’s the purpose of these new mortgage forms? According to BankRate’s Holden Lewis, the forms create greater transparency in the mortgage application process. When buyers feel more knowledgeable on the subject, they will have greater confidence in securing a loan.
“The closing disclosure is much clearer now,” said Holden Lewis of BankRate. “You can compare it side by side with the loan estimate to see what’s changed. And I think people will feel more confident and secure that nothing will sneak past them, that they got the loan that they were promised.”
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