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Know Before You Owe

Financial Advisor Mortgage Lending June 15, 2016 Author: Woody Derricks

Know Before You Owe

During the foreclosure crisis a few years ago, it became clear that many borrowers didn’t understand the terms and rules or their mortgages. In response, the Consumer Financial Protection Bureau (CFPB) has been working to simplify the lending process. This is great news if you’re buying a new home in 2016!

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The CFPB came out with the Know Before You Owe mortgage disclosure rules in October, 2015. Under the new rules, the old disclosure forms were replaced with two new disclosure forms, the Loan Estimate and the Closing Disclosure. The new forms are much more user friendly. They help you clearly see what you’re getting into and how much your loan is going to cost you. Best of all, they make it easier for you to shop around and compare different loans against each other. The CFPB recommends that you apply for loans from at least three lenders so you can compare Loan Estimates before choosing a mortgage.

The Loan Estimate is given to you first. It should reflect a particular loan you discussed with a lender. Be sure to check the Loan Estimate to make sure that everything matches what you discussed. The Loan Estimate clearly shows the type of loan, fixed rate or adjustable rate. It includes details regarding interest rate. If the loan is an adjustable rate, it includes what the rate can adjust to after its fixed period. It details every cost that a borrower will incur, including interest rate, lending fees, appraisal fees, title insurance, and closing costs. It also specifically lets you know if there is a pre-payment penalty.

The Closing Disclosure is a statement of the final loan terms and closing costs. It spells out all of the final costs, including taxes, insurance, closing costs, fees, how much each realtor is getting and, who is paying what, the buyer or the seller.  Lenders are required to provide the Closing Disclosure to you three business days prior to the scheduled closing. You should compare this document to the Loan Estimate to be sure that the information is the same. If something looks different, this is the time to ask why and get problems resolved. You have the right to ask for an additional three days if the information is not the same. Additionally, you can cancel a transaction right up to the closing.

The Consumer Financial Protection Bureau (CFPB) launched a new, online resource center for borrowers. This website is a great tool for understanding the mortgage process.

Additional Resources:

For help reviewing the Loan Estimate, go to http://www.consumerfinance.gov/owning-a-home/loan-estimate/.

For help reviewing the Closing Disclosure and comparing it to the Loan Estimate, go to http://www.consumerfinance.gov/owning-a-home/closing-disclosure/

For more information on Know Before You Owe: http://www.consumerfinance.gov/know-before-you-owe/

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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