Before You Buy, Know Before You Owe

Since the last major housing bust in 2008, there has been a lot of legislation passed to help better protect consumers. One new regulation is now in effect and while it is another great way to protect you, the homebuyer, there may be some delays in home loan processing to contend with. As of October 3, 2015, all home loan and refinancing lenders must disclose all the costs and payment figures, including any changes that are worked into the life of a loan. The new regulations, called KnowBefore You Owe, center on two new disclosure forms that have to be provided to any borrower no less than 3 days prior to signing loan documents. The forms are standardized and all businesses dealing with them have to now be compliant in using them and integrating them into their loan processes.

So what does this mean to you as a consumer?  First, anytime you buy or refinance your property, you will be given forms which specify clearly exactly what all of the closing costs are and what your payment will be. In addition to this, you will be provided calculated payments for any term adjustments that are included in the terms for the life of the loan. All potential adjustments are revealed to you before you sign the paperwork. The goal of these forms is for buyers to be fully aware of what out-of-pocket costs they are taking on by signing for a home loan. The difficult part in this new process will be the expected added time to get loans processed to begin with. Because financial institutions now have to provide more in-depth calculations for the life of all loans, they are anticipating needing more time to meet the compliance requirements and handle the quantity of loans. Needing more time to prepare will delay new loans from being started.

But there are things you can do to help move the process along. The main thing is to have all of your own documentation ready to go. Gather all financial and job information, making sure everything is current and up-to-date before you begin the loan process. By having everything the bank needs up front you can avoid even more delays as they will not need to seek additional or missing information from you. Another option which may prove worth it is to request an extended locked rate. When it comes to getting a home loan, the rate you get locked into only stays as such for so long. If the loan takes longer to process then you can lose your guaranteed interest rate and could end up paying more. An extended locked rate will help protect you against time delays. But it comes with a cost; there is a fee to get an extension on the lock of an interest rate. I would watch the market over the next several weeks to see if financial institutions begin to indicate they have a long backlog of loans to process. If the delay is closer to two months instead of one month to process a loan, getting an extended locked rate may be worth it.