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The Consumer Financial Protection Bureau (CFPB) is releasing new online tools as part of its Know Before You Owe initiative aimed at helping consumers navigate the mortgage process. The tools provide an interactive overview of the mortgage process, help homebuyers decide how much they can afford to spend, and help consumers explore and use the new Know Before You Owe mortgage forms. Creditors will have to begin providing the new forms on Oct. 3, 2015, making it easier for consumers to understand mortgage options and comparison shop between multiple loan offers.
“Our new mortgage forms reduce the information gap between lenders and consumers, shedding light on a process that often feels like a mystery,” said CFPB Director Richard Cordray. “It is time consumers have more power in the mortgage process, and our new forms and online tools will help make that a reality.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act directed the Bureau to combine certain federal mortgage disclosures that consumers receive when taking out a mortgage. In November 2013, after extensive testing, the CFPB finalized the combined, easier-to-understand Know Before You Owe mortgage forms—the Loan Estimate and Closing Disclosure. Consumers applying for most mortgages on or after Oct. 3, 2015 will receive the new disclosures. The forms will better help them understand their options, choose the deal that’s best for them, and avoid costly surprises at the closing table.
The Loan Estimate details the transaction, including the estimated loan and closing costs. Consumers can use this form to do apples-to-apples comparison shopping between loans. The Closing Disclosure, which details the final transaction, is provided to consumers at least three business days before closing. This time period allows consumers to confirm whether they are getting what they expected, ask questions, and negotiate over any changes. The Loan Estimate and Closing Disclosure mirror each other, making it easy to compare estimates with final loan terms.
The CFPB first launched “Owning a Home” in January as part of its Know Before You Owe mortgage initiative. It is an online, interactive suite of tools written in plain language to help consumers navigate the mortgage process and make decisions. Mortgages have different terms and features, such as the loan term, loan type, and interest rate. Consumers also need to consider how much they can afford to spend on a home.
The CFPB is adding new tools to the “Owning a Home” site to help consumers throughout the experience of shopping for a mortgage. The new tools help consumers decide if owning a home is the right choice, understand what they need to do to get a mortgage, find the best offer, and close the deal. The new “Owning a Home” tools include:
►Guide to the mortgage milestones: The new “Owning a Home” site is organized into different phases of the mortgage process. Each phase contains practical actions consumers can take, helpful information to keep in mind, and tips on how to avoid pitfalls. Also in each phase are interactive tools and resources to help consumers with key decisions.
►Monthly mortgage payment worksheet: The tools include a monthly payment worksheet that helps homebuyers figure out how much they can spend on a mortgage. It asks potential buyers to consider their current debts, savings, living expenses, and projected costs if they bought a home.
►Interactive sample of the new Know Before You Owe mortgage forms: “Owning a Home” features an interactive sample of the Loan Estimate and the Closing Disclosure. These can help consumers double-check the details of their own transactions and get definitions for terms they may not understand. The interactive samples provide descriptions and highlight key areas for consumers to pay attention to. For example, for the Loan Estimate, the tool helps consumers check if their rate is locked, if the loan amount is the expected loan amount, if the interest rate is fixed or adjustable, or if there a prepayment penalty. And “Owning a Home” shows consumers where to look, page-by-page, to check that terms and numbers on both the Loan Estimate and Closing Disclosure match.