As of the beginning of October, applying for a home loan has changed quite a bit, and it’s leaving some folks in our Witchita, KS service area (along with our other service areas) pretty confused. Despite its intent to clarify the home loan application process, it’s muddied the water a bit as lenders, real estate agents, buyers and sellers all learn to navigate these new updates.
So we put together a two-part Q&A guide to help buyers better steer through the murk. Our hope is that you will come out on the other side with a much clearer understanding of the changes and how they benefit you, the buyer.
Q: What do the changes effect?
A: The changes effect the home loan application, closing process, and preapproval timeline. Realtors and lenders expect these changes to add two weeks onto the closing process, which may mean you have two weeks less to shop and find a home before your preapproval expires.
Q: What are the changes?
A: Historically, the home application process lived by two major rules: The Real Estate Settlement and Procedures Act (RESPA) and the Truth in Lending Act (TILA). These acts meant well, but there were a couple major flaws:
- The mortgage costs, interest rates, monthly payments, and all of the costs of a mortgage weren’t clear or often listed at all.
- Closing costs were bundled into totals rather than clear-cut line items, and they sometimes wouldn’t reach the buyer until a few minutes before closing.
The new rule brings these two ideas together, simplifying the process and making home buying better for consumers.
Q: What are the new rules?
A: Called TILA-RESPA Integrated Disclosure (TRID), the new rules are as follows:
- Rule 1: Mortgage lenders must disclose all loan costs to consumers within three business days of the loan application, and those figures are now more precise – with high penalties to the lender if they are not.
- Rule 2: All closing costs must be disclosed to the buyer at least three days before closing.
Q: How does Rule 1 change things?
A: Prior to the rule change, once an application was approved, buyers would get two forms. One had APR and finances charges, and the other was the Good Faith Estimate. This would tell consumers the lender charges and fees, but didn’t include total monthly costs. It also included an estimate of some of the closing costs, yet again not all costs were included.
The new rule combines these forms and removes the closing costs section entirely. Now called the Loan Estimate Form, it tells you what your home loan payment will be throughout the entire life of the loan – down to the penny. These figures provided to you are mostly locked in, and unless there are major mitigating circumstances, the lender will be required to pay you back every dollar over what they said it would be. For that reason, lenders will now take control of the closing process (instead of the title company), so they can ensure complete accuracy when providing loan costs. You must receive the Loan Estimate within three business days after your application is approved.
It’s important to note, there are essentially three different “buckets” that the information on a Loan Estimate Form will fall into:
- Zero Deviation: Costs like the mortgage loan cannot change.
- 10 Percent Deviation: If consumers use an aggregator lending tool, the numbers are allowed to deviate by 10 percent.
- True Estimate: Includes costs like HOA fees and other monthly expenses that the lender does not have control over.
Q: How does Rule 2 change things?
A: Prior to the rule change, near the end of the home buying process, buyers would get a form that had a bundled group of closing cost charges. It was three pages long and often didn’t end up in front of the buyer until shortly before closing – many times within minutes of signing, and often didn’t include all of the closing costs.
Now, buyers will receive what is called a Closing Costs Disclosure at least three days prior to closing. Here is how it works:
- The first page includes a line-by-line list of charges, telling you down to the cent how much money you will have to bring to closing and what each is for.
- The second page has the list of the vendors, like appraisers, that were involved in the process.
- The third page compares the original Loan Estimate form to the actual costs, ensuring that you will know exactly how much of a difference there was, and why.
- The fourth page breaks down the appraisal of your new home.
- The fifth page is a contacts page for parties like the real estate agent, lender and title agent.
This is a lot of information to take in, so take your time digesting everything. We’ll be back soon with Part Two of this series, answering questions that have more to do with the preapproval and application process, as well as negotiations and closing timelines. And we’re always here to answer any questions you have about applying for a home loan, both in Witchita, KS and in any of our other services areas throughout the United States.
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