A new mortgage rule goes into effect in early October. The rule, called “Know Before You Owe”, is designed to protect buyers from surprises at closing. In response to the housing crisis, Congress directed the Consumer Financial Protection Board (CFBP) to come up with easier to understand forms. Under the old system, home buyers received four different forms disclosing the terms of the loan and closing costs. These contained overlapping information, complicated wording, and often resulted in confusion. Under Know Before You Owe, consumers are given only two forms: the Loan Estimate and the Closing Disclosure. All costs and fees are laid out in an easy-to-read format.
For people considering buying or selling Short Hills or Maplewood homes, this is an important change. Consumers are more educated than ever about the nature of the mortgage debt they are taking on, and, in some circumstances, they can walk away from a deal that won’t work for them. Home buyers are given three days to look over and understand the new forms, whereas the old rules required that the forms be given on the day of the signing.
Home buyers and sellers need to be aware of this three day rule, since it can affect move-in dates. If interest rates go up by more than an eighth of a percent during the three-day period, or if other fees increase, the three day period starts over and new documentation is required. People working on a tight schedule need to get to the negotiating table early, and cash buyers may have an advantage over those who need a loan. It will no longer be possible to make last-minute changes to loans.
Overall, the new rules will help a lot of consumers to understand this momentous financial decision better. Be sure to visit the CFPB webpage explaining the new forms.