Purchasing a home isn't nearly as simple as touring an open house, settling on a sales price and signing a dotted line. There are lots of complicated documents and fine-print-filled forms that also have to be received and reviewed along the way, especially when it comes to securing a mortgage.
Fortunately, the Consumer Financial Protection Bureau is instituting changes that aim to simplify the paperwork and process involved for mortgage borrowers.
Current rules under the Real Estate Settlement Procedures and Truth in Lending Acts require that multiple forms be distributed to borrowers at several different time points to inform them of the costs and terms of the mortgage. However, these forms contain overlapping information in inconsistent formats, making it challenging for consumers to comprehend the important details they need to make good financial decisions.
A new rule from the CFPB — called the TILA-RESPA Integrated Disclosure rule and set to go into effect August 1 — will help remedy this problem by combining four existing disclosure documents into two forms:
A loan estimate, which will have to be delivered within three business days of receiving the borrower's loan application.
A closing disclosure, which the consumer must receive at least three business days before the transaction is completed.
Kimberly Hollingshead, president with Touchstone Title and Escrow in Franklin, Tennessee, said the new TRID rule will benefit consumers in several ways.
"One, consumers will now have loan estimate and closing disclosure information available in both English and Spanish. Two, the information presented will be consistent and much easier to understand. And three, the new rule will eliminate much of the last-minute stress many homebuyers experience," Hollingshead said. By receiving the closing disclosure at least three days prior to closing, buyers will have ample time to review paperwork and make any necessary adjustments without the immediate pressure of trying to get to the closing table, she said.
Additionally, TRID will ensure that borrowers receive a reliable, consistent loan estimate from all lenders to whom they provide their personal information.
"This will encourage borrowers to shop for their loan," said Liliana Nigrelli, vice president of compliance for Churchill Mortgage in Brentwood, Tennessee. "Borrowers can also be assured that lenders will be held to the estimates for charges paid to the lender or affiliate or charges for required fees in which the borrower had no ability to select the provider."
Keep in mind, however, that TRID may result in delays for some prospective homeowners.
"The most important change is that the consumer must be given an accurate closing statement, which matches the most recent loan estimate, at least three days before closing. Since that is not the case today, this will certainly delay some closings," said Casey Fleming, a mortgage adviser with San Diego-based C2 Financial Corp. and Bay Area author of "The Loan Guide: How to Get the Best Possible Mortgage."
To keep the loan and closing process moving along smoothly, borrowers are encouraged to send their financial information promptly to lenders/brokers, said Kathy Baird, chief compliance officer for Lending Tree in Charlotte, North Carolina. "If more than 30 days elapse, update that information as soon as possible and ask your lender if they need the new information," Baird said. "Be willing to accept electronic communications and/or delivery of documents to prevent delay of the process. Lastly, read your disclosure, understand the fees, expenses and reserves required for your loan, and, for anything you don't understand, ask your lender or personal attorney or financial advisor to explain those terms."
Consumers are also recommended to read the CFPB's new "Your Home Loan Toolkit" (available for free download at consumer finance.gov) to better understand the borrowing and closing process and how to find the right lender.