A Change in Loan Disclosure Requirements: What Buyers Should Know
Last fall, the Consumer Financial Protection Bureau (CFPB) enacted new long-awaited rules affecting the disclosures homebuyers receive upon closing on a loan. The so-called “Know Before You Owe” rules affect both timing and information provided to prospective homebuyers, arming them with a more complete picture of the loan to which they’re committing, as well as information they can use to shop around for better loan terms and rates.
The new rules introduce a number of changes intended to protect consumers and allow them to have a better grasp on the terms of their mortgage, while also aiming to protect the financial market from another 2008-like mortgage crisis. Within three days of applying for a loan, potential buyers now receive a loan estimate, which provides a clearly-stated fact sheet on the projected monthly mortgage payment inclusive of taxes and other fees, the amount the buyer can expect to pay in closing costs, and yes or no answers to such questions as whether the loan includes a balloon payment or prepayment penalty, and whether certain amounts can increase after you’ve closed on the loan. This loan estimate is intended as a tool for buyers to shop for other loan offers, and to have a clear understanding of exactly what sorts of costs are involved in purchasing a home.
When closing on a home, buyers will receive a revised closing disclosure three days before the loan is scheduled to close. This document now includes the final amount you should be prepared to pay at closing, as well as all locked-in loan costs. The new rules also bring a longer closing period, rising from around 30 days to about 45 days. In part, the longer closing period can be attributed to the addition of events which now trigger three-day waiting periods, such as when a prepayment penalty is added to the terms of a loan, or a loan product changes from fixed- to adjustable-rate, or becomes an interest-only loan. The additional length of the closing period for homebuyers who are using a loan to make a purchase has created a more favorable market for cash buyers who are not constrained by the longer closing time. However, experts estimate that closing times will decrease as lenders and realtors adjust to the new rules.
If you are a prospective home buyer or seller in Maryland and are in need of seasoned legal help to protect your interests in a real estate transaction, contact the experienced and knowledgeable Annapolis real estate attorney Matthew S. Evans, III, at 410-626-6009.