KNOW BEFORE YOU OWE – MORTGAGE RULES

On August 1, the Know Before You Owe mortgage rule goes into effect. One of the important requirements of the rule means that you’ll receive your new, easier to use closing document, the Closing Disclosure, three business days before closing. This will give you more time to understand your mortgage terms and costs, so that you know before you owe.

Giving you three business days to review your Closing Disclosure before you sign on the dotted line is designed to protect you from surprises at the closing table. It also gives you time to consult with your lawyer or housing counselor and ask all the questions you might have about the terms of your mortgage.

The new mortgage disclosures will delay the closing. First, the three business day rule is based on delivery of the disclosures.  Delivery is presumed based on the mailbox rule of adding an additional three (3) days.  So, the three day business rule is effectively a six (6) day rule.   Also, if there is a change to any one of three, very specific, and very important items, the lender must give another three business days to review the updated disclosure.  They are:

  • Increasing the annual percentage rate (APR) by more than 1/8 of a percentage point for a fixed rate loan or 1/4 of a percentage point for an adjustable rate loan (decreasing the interest rate or fees doesn’t cause a delay) or
  • The addition of a prepayment penalty or
  • Changes in the loan product, from a fixed rate to an adjustable rate loan.

However, many things can change in the days leading up to closing that won’t require a new three day review period, including typos on the forms, problems discovered on a walk through, and most changes to payments made at closing, including changes that require seller credits.  The Bureau does not care about the seller, only the consumer.
Remember:  Know Before You Owe mortgage rules go into effect on August 1st.

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