October 29, 2015
Whether you are buying a home or refinancing an existing mortgage, new federally required disclosure documents make it easy-yes, I said easy-to be a super smart mortgage shopper.
Within three days of applying for a mortgage a lender is now required to provide you with the 3-page Loan Estimate. Then once you get within three days of your mortgage closing the lender must cough up a 5-page Closing Disclosure doc. What’s remarkable, is that these documents are actually written in a clear consumer-friendly way. They are so not the muddled, confusing docs of old. And that’s fantastic news.
Some of the highlights of the Know Before You Owe disclosures are the result of the Consumer Financial Protection Bureau standing up for you:
Comparison shopping is now easier than ever. The uniform Loan Estimate spells out the specific terms of the loan, and on page 2 provides a detailed line-item account of the closing costs you will pay to get this loan. When you are shopping for the best mortgage deal, apply at a few lenders (the only charge, if any, should be to run your credit reports) and then do side-by-side comparisons of the terms and fees laid out in the uniform Loan Estimates you receive.
You can more easily make sure a lender isn’t sneaking in any last minute surprise fees. Once you decide which lender you will go with, hold onto your Loan Estimate. When you are close to your closing date, the lender must provide the Closing Disclosure form. You can carefully compare the fees you were told you would pay (on the Loan Estimate) with the fees the lender is now telling you it is going to charge you. They should match up.
Help thinking about the big picture (Part 1). Both documents include—on page 1—a clear breakdown of what your projected monthly housing costs will be, including what you will likely owe for property tax and insurance. Focus on that section and honestly ask yourself if you can afford to make that financial commitment, and also be able to keep on track with all your other financial goals.
More help thinking about the big picture (Part 2). Both disclosure docs include sections that give you a sense of your all-in obligation for years to come. Be sure to check out the Total Interest Percentage (TIP) that shows how much your total interest will be relative to the amount you have borrowed. Talk about an eye opener. Your TIP of course depends on the interest rate of your loan, but even at today’s low rates a TIP can add another 60% or more to the cost of your mortgage. All of this is great information, right at your fingertips, that will help you carefully consider whether this deal is in fact right for you.