The real estate professional’s guide

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Know Before You Owe mortgage initiative

Real estate professionals are trusted resources for people choosing to buy a home. Newdownload rules taking effect will change your clients’ home buying experience. Since clients turn to you for help, we’re providing you with this guide to explain the Consumer Financial Protection Bureau’s (CFPB) Know Before You Owe mortgage initiative.

The Know Before You Owe mortgage initiative is designed to empower consumers with the information they need to make informed mortgage choices. It includes the implementation of the TILA-RESPA Integrated Disclosure rule, which is often referred to as “TRID.” We prefer Know Before You Owe.

Mortgages are complex and confusing. This new rule primarily does two things:

  • It simplifies and consolidates some of the required loan disclosures.
  • It changes the timing of some activities in the mortgage process.

 

Quick Quiz

Fill in the Blank:
Real estate are trusted resources for people choosing to buy a home.

Smooth and on-time closings

images (1)As you know, preparation and communication are the most effective ways you can help your clients have a positive experience when financing a home purchase. Here are five areas you may want to focus your attention, to facilitate the best experience for your clients.

Engaged home buyers are more likely to select a mortgage loan that meets their needs and presents few surprises during underwriting. The pre-application timeframe is critical and gives clients a chance to decide on a loan type and down payment amount before they are focused on a closing date.

Make sure your clients feel comfortable they can afford the home and feel confident in their ability to receive a mortgage loan approval for the required amount.
Encourage prospective homebuyers to review their credit reports early in the process. Through early review, they can find and correct errors to potentially raise their credit score and reduce their cost of borrowing.

Quick Quiz

Fill in the Blank:
The pre-application is critical and gives clients a chance to decide on a type and down payment amount before they are focused on a date.

Once a property has been identified, encourage your clients to apply for Loan Estimates from multiple lenders.

Loan Estimates no longer require written documentation, so encourage your clients to compare offers from several lenders. This will avoid second guessing whether they got the best deal. Learn more about how the newly designed disclosures simplify the process.

  • Loan Estimates show rates and loan terms in an easy-to-compare format, customized based on your clients’ credit and the details of their request.
  • Clients who understand market rates are more likely to feel confident about their choices and work proactively and collaboratively with their lender.
  • Loan Estimates are most useful when your clients define the requested mortgage type and compare “apples-to-apples” Loan Estimates.

HELPFUL RESOURCES :We’ve done a study that found nearly half of all mortgage shoppers don’t compare lenders. This infographic shows why it’s important to shop around.  CFPB interactive sample Loan Estimate form guides users through the different fields on the form and defines technical terms.
Quick Quiz

Fill in the Blank:
Loan are most useful when your clients define the requested mortgage type.

Make sure your clients indicate their intent to proceed.

imagesLenders have different policies about what your clients need to do to successfully move an application forward from the Loan Estimate stage into active processing, when the appraisal and other verifications typically begin. Talk to lenders serving your area to learn about those policies and discuss lender requirements with your clients to be confident that your clients have an active mortgage application underway.

Your clients might request a Loan Estimate and then feel like they’re done—but Loan Estimates expire after ten business days. If your clients do not complete the steps required by the lender to express their intent to proceed, their applications could be closed as incomplete. If this happens, your clients will likely need to start over with a new application. Learn more about what has and has not changed about the mortgage process.

HELPFUL RESOURCES: Ask CFPB has answers to hundreds of mortgage questions, including information on intent to proceed.  Be the source of accurate and timely information about the property and transaction.

Open lines of communication help prevent needless confusion and delays.

  • Make sure your clients have detailed information they can share with their lenderPC-15-0588_Know-Before-You-Owe-HPAd about property taxes, homeowner’s association fees, condominium association fees, and the estimated cost for homeowners insurance. Although the lender likely needs to verify these costs later, accurate numbers now can prevent revised Loan Estimates later.
  • If anything about the transaction changes, communicate those changes promptly to everyone involved and confirm the information has been received. The lender determines whether the change requires a revised Loan Estimate. Your best strategy is to communicate any changes to your client and to confirm that the lender has received the information as well.
  • Confirm the lender and the closing company have the buyer’s and the seller’s real estate broker information. Because this information appears on the Closing Disclosure, they both need correct and complete information.
Quick Quiz

Fill in the Blank:
the lender and the closing company have the buyer’s and the seller’s real estate broker .

Find out who provides the Closing Disclosure.

Home-Selling-3Find out who will be preparing and providing the Closing Disclosure, when and how your client can expect to receive it, and how any last-minute changes are handled. Business practices can vary from lender to lender and state to state.

Previously HUD-1 Settlement Statements were most often provided by a settlement agent, attorney, or closing company. This may not be the case for the Closing Disclosure. Lenders may choose to prepare and deliver the Closing Disclosure to your client directly. They may deliver it through the mail, in-person, or electronically (if your clients have given permission for electronic delivery).

Find out if the lender or the closing company has a required time frame for any change requests. Keep in mind that no matter who prepares or provides the Closing Disclosure, the lender is accountable for its accuracy and approves the final version.

Extra three-day reviews are unlikely

Under the Know Before You Owe rule, lenders must give your clients new, easier-to-use disclosures about their loan three business days before closing. This gives your clients time to review the terms of the deal before they get to the closing table.

Many things can change in the days leading up to closing. Most changes will not require the lender to give three more business days to review the new terms before closing. The new rule allows for ordinary changes that do not alter the basic terms of the deal.

Quick Quiz

Fill in the Blank:
Under the Know Before You Owe rule, must give your clients new, easier-to-use disclosures about their loan three business days before .

No other changes require a new three-day review

There has been much misinformation and mistaken commentary around this point. Any other changes in the days leading up to closing do not require a new three-day review, although the lender will still have to provide an updated disclosure.

For example, the following circumstances do not require a new three-day review:

  • Unexpected discoveries on a walk-through such as a broken refrigerator or a missing stove, even if they require seller credits to the buyer.
  • Most changes to payments made at closing, including the amount of the real estate commission, taxes and utilities pro-ration, and the amount paid into escrow.
  • Typos found at the closing table.

Great Agent Resources:

Fillable forms (pdf)  

Quick Tips for Using MLSConnect  

Overview of the Revised AAR Forms” webinar with Martha Appel and Scott Drucker, AAR General Counsel

Overview of Form Revision Updates

Information about TRID 

If you have questions:

MLSConnect/zipForm®:  Business Services Support #866-833-7357 or support@aaronline.com

TRID questions: Jan Steward, Manager, Risk Management, AAR at JanSteward@aaronline.com

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