Know Before You Owe: New mortgage disclosures, new rule

Today, the process of getting a mortgage is easier to understand because the Know Before You Owe mortgage disclosure rule is now in effect. The disclosures required for getting most mortgages have been redesigned to help you shop around to compare offers and find the loan that’s the best for you. We’ve also required lenders to give you more time to review the terms of your mortgage before accepting them, so that you can ask questions of your lender or seek advice from a housing counselor or lawyer.

You can learn more about this rule at consumerfinance.gov/knowbeforeyouowe.

We’ve put together some frequently asked questions about the new rule and how it will make the mortgage process easier for you.

What happened?

If you apply for a mortgage on or after October 3, our new disclosures are required for most mortgages. For most kinds of mortgages, you will have three business days to review your Closing Disclosure before you close. This rule is a part of our Bureau-wide Know Before You Owe mortgage initiative. We are working to make the costs and risks of financial products and services clearer, so you can make better, more informed decisions.

What’s the rule?

The Know Before You Owe mortgage disclosure rule, which was mandated by the Dodd-Frank Act, combines the required federal disclosures for most mortgages. It also requires lenders to give you your Closing Disclosure three business days before you close. This three-day period gives you time to understand the terms of your loan, compare it to the Loan Estimate you were given, and ask your advisors or lender any questions.

What are the disclosures?

The disclosures are forms that you get when you work with a lender to get a mortgage. These forms are required to help you understand the terms of your mortgage before accepting them. If you applied for a mortgage before October 3, 2015, you would have received a Good Faith Estimate and an initial Truth-in-Lending disclosure. Now, for most mortgages, you will get a Loan Estimate within three business days of submitting an application. At least three business days before you close, you will also get a Closing Disclosure. It contains a summary of the final terms of your loan. This form replaces the HUD-1 Settlement Statement and final Truth-in-Lending disclosure forms for most mortgages.

Why did you change the forms?

For more than 30 years, federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage and two different disclosure forms to consumers before they close on a mortgage. Two different agencies developed these forms since Congress first mandated them, and they had a lot of overlapping information. The two new forms, the Loan Estimate and the Closing Disclosure, combine information and mirror each other, so you can easily compare the terms you were given on the Loan Estimate with the terms on the Closing Disclosure. We tested them with consumers, lenders, and other mortgage professionals and found that the new forms help people better understand their mortgage terms and make it easier for people to find the information they need.

Will this rule delay my closing?

For most situations, the answers is no . The rule gives you three business days to review your Closing Disclosure and check it against your Loan Estimate to ensure that the deal you were proposed in the estimate is the deal you are getting. Our research found that, prior to this rule, consumers felt there wasn’t enough time to review their documents, so the rule gives you time to ensure you feel comfortable before you sign on the dotted line for your mortgage. Only where three very important things change about your loan after you get your Closing Disclosure does the rule require a second three-day review period. Minor, ordinary changes do not require an additional three-day review period.

This is a lot of information. How can I learn more about the mortgage process?

We know the prospect of getting a mortgage can seem very confusing, but we have a lot of resources that will help guide you through the process.

1. We have a suite of tools and resources called “Buying a House.” Here you will get step-by-step explanations of how to go about getting a mortgage and what to consider when making decisions. You’ll also find tools and resources to help you learn more about your options, make decisions, and prepare for closing.
2. “Your Home Loan Toolkit ” is a downloadable booklet you can use to learn more about the mortgage process. It offers you easy to understand information, and gives you conversation starters to help you through key points in the mortgage process.
3. When it’s time for you to get your Loan Estimate, we have a resource in “Buying a House” that guides you through the form, page-by-page. We help you double-check the details and get definitions for unfamiliar terms. We have a similar resource for the Closing Disclosure.
4. We also offer a tool to help you find a housing counselor. A housing counselor can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, usually at little or no cost to you.

If you have more questions, please visit consumerfinance.gov/knowbeforeyouowe where you’ll see all of our supporting documents, a timeline of our work on this project, and a video that explains the initiative . There are also answers to many detailed questions about the forms and the mortgage process in AskCFPB.