'Know Before You Owe' Rule Takes Effect to Clarify Mortgage Process

The dreaded mortgage closing process, an intimidating collection of numbers to most first-time home buyers, is now going to get easier to get through thanks to the “Know Before You Owe” disclosure rule that takes effect this week.
If you apply for a mortgage on or after October 3, new disclosures are required for most mortgages. For most types of mortgages, lenders must now give you three business days to review your new Closing Disclosure form before you close.

This rule is a part of wider Know Before You Owe mortgage clarification campaign launched by the U.S. Consumer Financial Protection Bureau — and mandated by the Dodd-Frank financial reform laws enacted after the housing crisis.
“We are working to make the costs and risks of financial products and services clearer, so you can make better, more informed decisions,” states the CFPB.
This three-day period that is now required before most mortgage closings gives borrowers time to understand the terms of the loan, compare the terms to the loan estimate previously provided, and ask advisors or the lender any questions.
Two new disclosure forms are required to help you understand the terms of your mortgage before accepting them. If you applied for a mortgage before October 3, 2015, you would have received a Good Faith Estimate and an initial Truth-in-Lending disclosure.
Two New Forms: Loan Estimate and Closing Disclosure
Now, for most mortgages, you will get a “Loan Estimate” within three business days of submitting an application. At least three business days before you close, you will also get the new “Closing Disclosure” containing a summary of the final terms of your loan.
The two new forms, the Loan Estimate and the Closing Disclosure, combine information and mirror each other — so you can easily compare the terms you were given on the Loan Estimate with the terms on the Closing Disclosure.
“We tested them with consumers, lenders, and other mortgage professionals and found that the new forms help people better understand their mortgage terms and make it easier for people to find the information they need,” the CFPB said.
The Bureau says that the new disclosure requirements should not delay closings.
“Our research found that, prior to this rule, consumers felt there wasn’t enough time to review their documents, so the rule gives you time to ensure you feel comfortable before you sign on the dotted line for your mortgage,” the CFPB said.
If you have more questions, see the CFPB’s consumerfinance.gov/knowbeforeyouowe where you’ll see all of the supporting documents, a timeline of the Bureau’s work on this project, and a video that explains the initiative.

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