New Loan Estimate Form Cuts Mortgage Costs

A new loan estimate form has been issued by the Consumer Financial Protection Bureau (CFPB).

Use of the new document will be mandatory as of August 1, 2015, however it can be expected that many lenders will start using the new form as soon as possible. Under federal rules lenders must provide a good faith estimate of closing costs or the new form to borrowers within three business days of application.

While forms generally sound like dull stuff, this one involves money and savings: borrowers will be able to use the new form to more effectively compare lender offers.

Use this link to see a sample of the new loan estimate form.

The loan estimate form, says the CFPB, “will be provided to consumers within three business days after they submit a loan application. It replaces the early Truth in Lending statement and the Good Faith Estimate, and provides a summary of the key loan terms and estimated loan and closing costs. Consumers can use this new form to compare the costs and features of different loans.”

The government agency said it spent two years “of extensive research, testing, and review to find out how to create mortgage disclosures.” The goal is to provide mortgage information to borrowers in a way that is quick and easy to understand.

Loan Estimate Form

The government says the new forms offer several advantages:

Short-term and long-term costs: By putting the important information in a clearer format than the current forms and in plain language, both the Loan Estimate and Closing Disclosure more easily explain the total costs of the loan. This includes an important breakdown of the loan amount, the principal and interest payment, and how it could change, and closing costs.

Monthly payments: The CFPB forms state in bold font what a consumer’s monthly principal and interest payments will be. If it is an adjustable-rate loan, the forms say the projected minimum and maximum payments over the life of the loan.

Comparisons of competing loan offers: The new forms use formatting that clearly breaks down the costs of the loan, such as the interest rate, mortgage insurance costs, and closing costs. As a result, would-be-homebuyers and those refinancing their existing mortgage are better able to distinguish between two different loan offers.

Shopping for closing costs: Closing costs are the costs of completing a mortgage transaction, including origination fees, appraisal fees, title insurance, taxes, settlement services, inspections, and homeowner’s insurance. Consumers can save money if they shop around for their own service providers for some of these costs. The CFPB forms plainly outline what closing services a consumer will need and which ones they can shop around for.

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