New Mortgage Rules – Know Before You Owe

REALTORS®, please see TRID – TILA RESPA Integrated Disclosure

“What are the New Mortgage Rules?”

“What is Know Before You Owe?”

Effective October 3, 2015, the Know Before You Owe new mortgage rules are officially in place. One of the biggest changes of the new mortgage rules is that it will now be required that you receive the new Know Before You Owe Closing Disclosure, three business days before your closing. Similar to the idea of a three-day-right-of-rescission, this regulation was created even better through the new mortgage rules. Now you are able to review the disclosure before you close, instead of after you close. These new mortgage rules guided the name Know Before You Owe. Interestingly enough, purchase closings don’t even have a right-of-rescission. One reason they don’t is because the closing generally takes longer than three-days, so in theory, there is plenty of time to cancel out of the agreement. There is concern in the industry that the new mortgage rules will slow down closings. In reality, there’s really only one new change from the new mortgage rules that would add to closing time-frames: The basic loan product changes. All other changes from the new mortgage rules were already in effect or irrelevant*. Below are the three possible changes from the new mortgage rules that would require a new 3-day review period:

1. The APR increases* by more than 1/8^th of a percent for fixed loans or 1/4^th of a percent for adjustable loans. (It has been required to provide a 3-day review for these changes since 2009.) Thankfully, any decreases in APR will not add to the review as long as it is based on changes to the interest rate or other fees.
2. A prepayment penalty is added* – already not applicable to traditional home loans where we are located, in Minnesota, but may be applicable in other areas.
3. The basic loan product changes, for example, switching from fixed interest to adjustable rate loan.

Aside from the new Closing Disclosure that will replace the Final TIL Disclosure + HUD-1 Settlement Statement, there will be a new change earlier in your loan transaction. Due to the new mortgage rules, the Initial TIL Disclosure and Good Faith Estimate is being replaced by the new Know Before You Owe Loan Estimate. See a comparison of the Current disclosures and the New Know Before You Owe Forms here. (Spoil alerter! There are three less legal-sized pages now.) The Know Before You Owe disclosures were designed for continuity so you can easily compare your Loan Estimate to your Closing Disclosure. This continuity ensures there are not unexpected changes at closing. The new mortgage rules disclosure examples listed above are for purchase loans (our specialty!). On those purchases, sellers also receive their own copy of the Closing Disclosure. For refinances, please see examples here: Know Before You Owe Loan Estimate and Closing Disclosure. Or with no fields pre-filled, see an example of a blank Know Before You Owe Loan Estimate and a blank Know Before You Owe Closing Disclosure.

These Know Before You Owe new mortgage rules are very positive for our industry. Before release, nearly 3,000 comments were reviewed and helped to mold the new Know Before You Owe disclosures and new mortgage rules. Then, the Know Before You Owe disclosures were thoroughly tested for over a year. Through correct answers by participants relating to a sample mortgage, it proved that the new mortgage rules and two new Know Before You Owe disclosures are easier to use and understand than what is currently in place.

For information regarding TIP (Total Interest Percentage) from the Know Before You Owe new mortgage rules, see our mortgage news article: TIP Now Required Mortgage – Total Interest Percentage