As part of its mission to reform the mortgage industry in favor of homebuyers, the Consumer Financial Protection Bureau replaced the industry's existing lending forms with more simplified documents. These documents took effect in early October, as part of the CFPB's "Know Before You Owe" initiative.
Here are five things to learn about these new disclosure forms.
Four forms become two.
When applying for a mortgage, you used to receive the Good Faith Estimate and Truth-in-Lending Act statements. Before closing, you were given the HUD-1 settlement and final TILA statements.
These days, you only have to worry about two mortgage documents instead of four: the Loan Estimate, which is given to you within three days of applying for a home loan, and the Closing Disclosure, which is sent to you three days before your scheduled closing.
The CFPB says the new forms, which were a few years in the making, are easier to understand and use.
The Loan Estimate helps you better compare loans ...
One of the most important aspects of homebuying, aside from finding the right house for you and your family, is choosing a mortgage that best suits your circumstances.
The Loan Estimate makes it easier for you to compare loan offers from multiple mortgage lenders by giving you a thorough idea of the many expenses related to a loan, including:
-- Your interest rate and whether it's fixed or adjustable.
-- Your monthly payment amount.
-- What the loan may cost you over the first five years.
You get this three-page form with every mortgage application, which helps you make an apples-to-apples comparison among different loans.
... and lenders, too.
Each lender has its own set of origination charges, which include an application fee, underwriting fee and points. These charges are outlined on the second page of the Loan Estimate.
Lender fees are among the few costs over which you actually have control, meaning you can shop around for the source of your home loan. As a rule of thumb, apply for mortgages with at least two or three lenders.
'Cash to close' isn't a mystery.
The first page of the Loan Estimate lists information about the approximate amount of money you should bring to the closing table to seal the deal on your home purchase.
The "Estimated Cash to Close," as it's called on the form, includes the closing costs attached to the loan transaction. If any of the closing costs are added to your loan amount that would also be noted on the Loan Estimate.
The cash to close amount also includes your down payment, minus any deposit you made or seller credits you're given, and also any additional adjustments or credits.
Your closing costs can't vary by much.
The fees listed on the Closing Disclosure -- the form you receive three days before your closing -- may not look identical to your Loan Estimate, but the two documents should be similar.
There are three categories of closing costs: those that cannot increase, those that can increase by up to 10 percent and those that can increase by any amount, according to the CFPB.
Lender fees and the services you aren't allowed to shop for can't increase, while fees for services you can shop for, such as homeowners or title insurance, can increase by any amount. Fees for certain lender-required third-party services and also recording fees can increase by up to 10 percent.
However, if your circumstances have changed significantly since you applied for a mortgage, you will probably be given a new Loan Estimate, which would restart this part of the homebuying process.