The latest mortgage initiative released by the Consumer Financial Protection Bureau (CFPB) is for the purpose of helping consumers stay informed about the loan options that are available to them. The Know Before You Owe rule has replaced four mortgage disclosure forms with just two: the Loan Estimate and Closing Disclosure, which can be viewed here. Here are a few things you’ll definitely want to be aware of before closing on a mortgage:
Application must begin with a loan estimate
The good news is that it’s now easier for you to compare multiple loans. The CFPB now requires that all lenders provide you with a loan estimate within 3 business days of when you provide them with the following: your name, income, Social Security number, address of the property you’re looking to buy, estimate of home’s value, and amount you want to borrow. Lenders cannot demand that you submit any other documentation in order to receive this estimate.
You’ll need to indicate your intent to proceed
After comparing loan estimates and deciding which one will work for you, you need to give your chosen lender notice within 10 business days of receiving the Loan Estimate disclosure. After that period of time, your lender is not obligated to honor the estimate given and you will likely have to start the application over from the beginning. Lenders cannot charge you any fees until after you have given them intent to proceed.
You’re given an additional 3-business-day review period if certain terms change
The following changes to loan terms will trigger a mandatory 3-day review period in order to give you enough time to make an informed decision about the mortgage, instead of being forced to make a last-minute decision on the day of closing:
- The APR increases by over 1/8 percent for most fixed-rate loans, and ¼ percent for adjustable loans.
- The type of mortgage is switched (for example, from adjustable to fixed-rate).
- A prepayment penalty is added, which means refinancing or selling will end up being much more costly for you.
Preapproval and prequalification haven’t changed
Your ability to secure financing is not impacted by the new changes.