If you have ever been to a mortgage closing you know the large stack of papers that loom in front of you begging for your understanding as well as your signature. You also know the confusion that occurs as you sign your name over and over again trying to grasp all of the numbers that are thrown at you as you fervently sign your name. Maybe you had a chance to look at some of the documents before the closing, especially the Good Faith Estimate and the Truth in Lending, both of which are required by law to be sent to you within 3 days of applying for the loan. This does not mean that you understand any of the documents or that you have a firm grasp on the loan that you are taking. That is all about to change with the new Loan Estimate that is set to take the place of the GFE and Truth-in-Lending in 2015.
What is the Loan Estimate?
The Loan Estimate is an integrated form that combines all of the important information of your loan onto one document. This document is supposed to make it easier for the loan to be understood as well as to make it easier for consumers to comparison shop with various lenders. The entire process was driven by the housing crisis and the lack of understanding that many consumers had of the mortgage that they took on at their closing. It is meant to fundamentally change the way that mortgages are written.
When will Consumers see the Loan Estimate?
The strictest part of the new regulations that will come to pass in August, 2015 is the need to have the document out to borrowers within 3 days of a mortgage application. The definition of obtaining a mortgage application will also change though. Any lender that you provide your name, address, social security number, loan amount and property address to is required to provide you with this document. If the document is not supplied, the lender is subject to some very serious fines as a result of being non-compliant.
What will the Forms Say?
The forms that will be required to be sent to each applicant will clearly spell out the terms of the loan. This includes information such as the interest rate, the monthly mortgage payment, the amount that you are borrowing and any closing costs that will be charged. The document will also cover the taxes and insurance that will be added to the mortgage payment, any fees that will be incurred, such as prepayment penalties and any other costs that borrowers need to know about. The forms should essentially be a window into the loan that you are about to take on, including how much it will cost you at the closing table as well as what it could cost you in the future. It is meant to limit the number of unpleasant surprises that borrowers receive either at the closing or several years into a loan that they never understood.
The ultimate goal of the new Loan Estimate is to make the loan process much simpler for borrowers from all walks of life. A mortgage is not meant f to take advantage of an unsuspecting borrower that did not understand the terms of his loan. It is meant to provide adequate housing with a payment that can be comfortably afforded for the foreseeable future. The paperwork is also meant to help put an end to any risky lending practices, such as charging exceptionally high fees, charging unnecessary prepayment penalties or giving a borrower a balloon loan. Essentially, 10 months from now, getting a mortgage should make a lot more sense and comparison shopping should be a breeze.Click to See the Latest Mortgage Rates»