As exciting as the homebuying journey can be, the process is often rife with frustration and uncertainty. When in the midst of making such a life-changing move, the smallest reprieve is a welcome change!

Fortunately, one such change is here. The TILA-RESPA Integrated Disclosure rule, a new policy enacted by the Consumer Financial Protection Bureau (CFPB), reduces the amount of paperwork in the mortgage process and helps buyers better understand their loan terms. It also eliminates confusion and worry around sudden changes.

Here’s the skinny on the TILA-RESPA Integrated Disclosure Rule and how it helps homebuyers:

What is the TILA-RESPA Integrated Disclosure Rule?

The TILA-RESPA Integrated Disclosure Rule is a new rule that reduces and simplifies the mortgage disclosures received at two important junctures of the financing process—when a person first signs on with a lender, and right before (s)he becomes a new homeowner at closing.

A little bit of history helps to put the new Rule in perspective. The Truth In Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA) were federal statutes that created the old forms that lenders were mandated to provide to consumers. Under those laws, lenders had to explain to homebuyers the terms of each loan and if there were any significant changes by the time of closing. This process was accomplished with a series of four forms, the Good Faith Estimate and an initial Truth-In-Lending Disclosure at the beginning, and the HUD-1 Settlement Statement and one more Truth-In-Lending Disclosure at closing. However, these forms were confusing and difficult to compare, often generating more questions than answers for homebuyers.

In the past few years, the CFPB proposed streamlining the process by combining the initial lending and final closing documents into just two forms. The result, the Integrated Disclosure Rule, is now fully in effect as of October 3, 2015, providing that:

  • Good Faith Estimate and the first Truth-In-Lending Disclosure become the Loan Estimate
  • HUD-1 and the second Truth-In-Lending Disclosure become the Closing Disclosure

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TILA-RESPA Integrated Disclosure Rule is a new rule that reduces and simplifies the mortgage disclosures received at two important junctures of the financing process—when a person first signs on with a lender, and right before (s)he becomes a new homeowner at closing.

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How the TILA-RESPA Integrated Disclosure Rule Benefits Homebuyers

Choosing your new home and wrestling with all the variables is stressful enough, so thankfully the lending disclosures are now one less thing to worry about. The new forms help borrowers in two important ways:

1. Homebuyers can more easily compare lender rates with the Integrated Disclosure Rule

Every Loan Estimate secured from a lender will look exactly the same and include a breakdown of the Loan Amount, Interest Rate, and Monthly Principal and Interest, and whether any of these figures can increase after closing. The Loan Estimate shows whether the loan features a prepayment penalty or balloon payments, and what the numbers will look like. It also shows a breakdown of projected monthly payments, including escrow and mortgage insurance, as well as estimated costs at closing. With the new Loan Estimate form, there’s no need to wade through complex industry terminology—the power is in the homebuyer’s hands to shop around and compare rates. The standardization of the disclosures can help consumers quickly determine the best deal.

2. With the new Closing Disclosure, homeowners will have fewer worries about last minute changes

Under the new rule, the Closing Disclosure must be issued to homebuyers three days before “consummation” of the loan, which is typically the day they sign off on the disclosure. With this document—which looks exactly like the Loan Estimate form—homebuyers will be able to see if any other fees have been tacked on, and they’ll have the time they need to ask questions.

At this point, if there are any substantial changes to the loan, such as the addition of a prepayment penalty, or a change in the loan product itself (a switch from a fixed-rate to an adjustable-rate loan), the TILA-RESPA rule mandates that lenders submit another disclosure to borrowers within three days.

All in all, the new TILA-RESPA Integrated Disclosure Rule helps eliminate financial surprises, and brings clarity to homebuyers trying to make sure-footed decisions as they proceed to closing. Those considering a new home purchase now have fewer obstacles in their path.

Still have questions on the new Integrated Disclosure Rule or the homebuying process? Contact me at victoria@victoriacarter.com, or give me a call at (973) 220-3050. I will guide you through your homeownership journey and help make it simple and successful.

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