{"id":36979,"date":"2015-10-03T06:40:26","date_gmt":"2015-10-03T13:40:26","guid":{"rendered":"https:\/\/redfindevelop.wpengine.com\/blog\/?p=36979"},"modified":"2020-10-06T17:08:26","modified_gmt":"2020-10-07T00:08:26","slug":"bankers-are-scared-but-buyers-shouldnt-be-understanding-know-before-you-owe","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/news\/bankers-are-scared-but-buyers-shouldnt-be-understanding-know-before-you-owe\/","title":{"rendered":"Bankers Are Scared, But Buyers Shouldn\u2019t Be. Understanding "Know Before You Owe""},"content":{"rendered":"

 
\n\"know<\/a><\/span>
\nNew rules on mortgages take effect today. They\u2019ve been years in the making and inspired much hand-wringing by bankers and real estate professionals. The changes are a big win for homebuyers, but expect some bumpiness for the next few months as we transition.<\/span><\/p>\n

What\u2019s going on?<\/h2>\n

The Consumer Financial Protection Bureau (CFPB), a government agency created after the housing collapse, has a new set of mortgage rules. It\u2019s called <\/span>Know Before You Owe<\/span><\/a> or, less elegantly, the TILA-RESPA Integrated Disclosure. That\u2019s <\/span>TRID<\/span><\/a> for short. <\/span>
\nThe consumer-protection law empowers buyers by making documents easier to understand (farewell, <\/span>HUD-1<\/span><\/a>). And it holds mortgage lenders more accountable for the kind of blatant bait-and-switch practices that have largely disappeared since 2009. In effect, TRID is a guardrail to keep us from going off track again.<\/span>
\nAs of today, when a home buyer applies for a mortgage, the rule applies.<\/p>\n

What\u2019s changing?<\/h2>\n

For decades — literally — the housing industry and consumer advocates have tried to make home buying less complicated. If you haven\u2019t had a <\/span>towering stack of legalese<\/span><\/a> dumped in front of you at closing, you\u2019ve heard horror stories from friends who have. Homebuyers typically sign dozens of pages they never read. <\/span>
\nIn the Wild West days of real estate, bad guys — some lenders, title companies and, yes, agents — would inflate fees or change loan terms at the last minute, often at the buyer\u2019s expense. <\/span>
\nThat bait and switch rarely happens anymore, but it should happen even less now. <\/span>Loan estimates<\/span><\/a> will be easier to read and homebuyers will get their final documents — the <\/span>closing disclosure<\/span><\/a> — well in advance. You\u2019ll have at least three business days (as opposed to mere hours) to read and understand what you\u2019re signing. Closing should be stress-free.<\/span><\/p>\n

Great! What\u2019s the big deal?<\/h2>\n

We\u2019ve never done this before. There are new forms, new deadlines and bigger fines for companies that get it wrong. Prepare for technical glitches, too. Banks and settlement offices have had to build or buy entire software systems to comply with the law\u2019s consumer privacy protections. Everything is untested.<\/span><\/p>\n

That\u2019s not so bad. The consumer wins, right?<\/h2>\n

Yes. But banks are freaked out and borrowers will feel their pain. Real estate is messy. Banks worry that even a small problem that\u2019s not their fault, like a mispriced termite inspection, could expose them to fines of between $5,000 and $1 million <\/span>per day<\/span><\/i>.<\/span>
\nWhoa. The average profit on a home loan is only about $1,500, according to the Mortgage Bankers Association. Lenders won\u2019t be taking any chances — even small problems could prompt them to delay your closing.<\/span>
\n\u201cWe\u2019re scared,\u201d <\/span>said Rod Alba, a senior vice president at the <\/span>American Bankers Association<\/span><\/a>. \u201cBe assured, banks are going to create some sort of buffer.\u201d<\/span><\/p>\n

Will this make it harder to get a mortgage?<\/h2>\n

No. In fact, it will be easier to shop for the best loan. Under the new rules, when you apply for a mortgage, lenders have three days to send you a written offer with lots of detail, including fees.<\/span>
\nBetter still, every <\/span>loan estimate<\/span><\/a>\u00a0will look about the same, so you\u2019ll be able to easily compare them. When you get one, l<\/span>ook at the last page, where it says \u201ccomparisons\u201d. That\u2019s where you\u2019ll find the annual percentage rate, or APR.<\/span>
\n

\"know<\/a>
CFPB Sample Loan Estimate<\/figcaption><\/figure>
\nThe APR isn\u2019t your mortgage rate, it\u2019s what your mortgage costs once points and fees are included. The law doesn\u2019t\u00a0reduce the line items involved in buying a house (couriers, notaries, surveys), but it will help you cut through the clutter when shopping around.
\n\u201cUnless you\u2019re a financial whiz, focus on the simple things, like plain-vanilla fixed rates,\u201d said Andrew Pizor<\/a>, an attorney at the National Consumer Law Center. \u00a0\u201cLook at the APR. Lower is usually better. If you stop there you\u2019ll be fairly safe. All the other stuff is details.\u201d<\/p>\n

Will this make it harder to buy a house?<\/h2>\n

No, but until the kinks are worked out it might take longer<\/em>. The CFPB says three things could trigger a three-day delay after you get your <\/span>closing disclosure<\/a><\/span>: <\/span><\/p>\n