Are the Know Before You Owe Rules Affecting You?

November 4, 2015

The Consumer Financial Protection Bureau has changed residential real estate as of last month. Contract forms and the terminology got a facelift. And the “Know Before You Owe” rules were added.

A lender is now a creditor, and the borrower/buyer is a consumer. The initial Truth in Lending statement and Good Faith Estimate that has been used for a number of years is now the Loan Estimate. And the old-faithful HUD-1 has been discarded in favor of a Closing Disclosure.

When a person buys a single-family house, the lender needs basic information including income, assets, and monthly expenses before a firm loan commitment can be made. But if the person is buying a condominium unit, the lender needs additional information about the association in order to assess the financial ability to repay the mortgage loan.

Community associations obtain their income from four sources: regular assessments, special assessments, transfer fees and miscellaneous move-in/transition fees charged at closing.

Under the new “Know Before You Owe” disclosure rules, the lender must provide the buyer with a written Loan Estimate within four days after requested and consumers must be given the Closing Disclosure (the old HUD-1) three days before closing.

This means that the length of time between contract and closing which typically has been 30 days will now most likely stretch to 45 days. Many national homebuilders with their own mortgage company have experience with these new rules, which can ensure a quick and painless closing.

There are a number of sources where the needed information is available, such as the multiple-listing service (MLS), the seller, the resale disclosure package and even the association’s Web site. This will enable lenders to meet the four-day requirement, and it will save associations and their property managers the hassle of having to meet multiple demands for information.

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