Wednesday, October 7, 2015

New Forms Make Closings Clearer

As of last Saturday, there are new closing forms when you go to buy a house. The new forms are an improvement, but there is one pitfall that can now come up. Detroit News columnist Brian O'Connor has an excellent discussion of this.

The old Good Faith Estimate, which was frequently not all that accurate an estimate in my experiences, will be replaced by a clearer form called a Loan Estimate. The new form includes a computation of how much you will be paying in all of the different costs, fees, and payments during the first five years of the loan, along with computing how much of that will actually pay down the amount owed on the house during that time.

Another form, the Closing Disclosure, replaces the HUD-1. It has been tested with focus groups to be much easier to understand.

I am one of the few people
who understood all of the mountain of forms they throw at you during a real estate closing. However, I know many of my clients did not until I explained them. Even though this may cut down on the hiring of lawyers by home buyers, I am always in favor of making these transactions easier to understand.

One potential pitfall: the Closing Disclosure must be finalized and presented to the purchaser three days before closing. If you have ever had the closing documents faxed the morning of the closing, then you know that will be a problem. Many lenders run a credit check at the last minute to verify nothing has changed. If you went out and ordered all new furniture for the bedrooms and living room before closing, last minute changes to the mortgage interest rate or whatever might mean that your closing gets pushed back three more days.