Three things to do before closing: What we learned from studying eClosing

eClosing graphic

We’ve heard from many consumers about the overwhelming process of closing on a mortgage, which can be confusing and difficult. Closing is the part of the mortgage process where you accept the terms of your loan, the last step before you owe, and usually before you owe more than you ever have in your life.

As part of our broader efforts to improve the overall mortgage experience, we’ve been exploring how technology can be used to address some of those pain points in the closing process.

Today we’re releasing the results of a pilot program where we explored tools and process changes that can help consumers better navigate closing by accessing and signing their closing documents in different ways. Specifically, we examined what would happen if there was more technology involved in the mortgage closing process, with documents being delivered electronically earlier together with online tools and resources. The electronic delivery and signing of closing documents using electronic signatures is sometimes referred to as eClosing.

We wanted to study the idea that by using technology as a tool, consumers may be better informed and prepared – putting them in the driver’s seat at closing.

What we found

Though our data is based on a limited sample of borrowers, we learned that borrowers experiencing eClosings on average scored higher on the pilot measures of empowerment, understanding and efficiency in the closing process, when we compared them to borrowers not using these elements of technology to close on their mortgage.

As the mortgage industry continues to take on eClosing and various innovations that help make such a complex process easier for you—the consumer—to navigate, we have three takeaways from this study that can help you with your mortgage closing, regardless of what closing process is available to you by your lender.

1. Ask for more of your closing documents before you get to the closing table

Consumers who participated in our pilot and received and reviewed documents before the closing meeting reported that they felt they had a clearer understanding of their loan and were less confused by the mortgage process than those who did not review the documents early.

As a part of our Know Before You Owe mortgage initiative we are working to give consumers more time to review the new mortgage disclosure called the Closing Disclosure. On October 3, 2015, our new mortgage disclosure rule will require that for most mortgages, consumers get their Closing Disclosure at least three days before closing. This new Closing Disclosure is a consumer-tested summary of your loan that gives you all of the final loan terms in one place before you sign on the dotted line. However, the Closing Disclosure will be one of many closing documents you will receive.

Ask your lender if you can see documents like the Promissory Note and the Security Instrument ahead of your closing. If you applied for a mortgage on or after October 3, 2015, use the new Closing Disclosure as the “executive summary” of your closing. Learn more about the key closing documents you can expect at Owning a Home, our suite of tools and resources for homebuyers.

2. Take time to review your closing documents in advance

The stack of documents at closing can be overwhelming. Reviewing these ahead of time allows you to focus on key documents ahead of your closing so you feel less anxious that you’re missing something buried in your closing stack.

Consumers in the pilot who received their closing documents in advance of closing and found errors on their closing documents were more likely to flag and ask for corrections on errors before they got to the closing meeting. Those in the pilot who reviewed their documents early were also less likely to say that they felt rushed during their closing meeting. Since these borrowers had the documents early, the “closing” effectively started days before meeting, and borrowers had time to ask questions before they signed on the dotted line.

3. Know about the mortgage process before you owe

Consumers in the study who used the CFPB’s educational tools such as Ask CFPB, a database of commonly asked financial questions, and our closing checklist found in Owning a Home, were more likely to feel that they could play an active role in their closing process than those who didn’t. Consumers who used some of these tools were also much more likely to report stronger agreement on statements like “I had a clear understanding of why the costs outlined in my initial Good Faith Estimate were different than my final closing costs.”

While our study is over…..

We’ll continue to promote consumer-friendly solutions in the mortgage process. In particular, we hope that the use of technology in the closing process is studied further by both the industry and government to see how it can potentially improve a borrower’s mortgage closing experience even more.

As eClosing continues to be studied and implemented, remember, you can use many of the principles we used in our study to improve your own closing.

Check out our full report to learn more about the pilot.

Due to technical issues, the commenting feature of our blog is temporarily unavailable. We’re working to bring this functionality back, and look forward to hearing your feedback and comments about the CFPB’s work soon.