Anyone who has purchased or refinanced a few homes has probably learned to dread the closing statement, which all too often included a pile of new or inflated fees that your lender had never before mentioned.
By the time you saw them, you were committed to a loan -- and probably a house -- and objecting to those fees would mean walking away from a much-anticipated deal. Most borrowers have just grumbled and paid up.
Those days are nearly gone forever, thanks to new government rules on real estate settlement that go into effect in January.
"This is a watershed moment for consumers, in the best possible way," said Jeff Lazerson, president of an online loan brokerage company called Mortgage Grader. "Lenders can no longer bait you in by lowballing a price and then deliver the gotchas when you close. In this new world, the bait-and-switch goes away."
Consumers will also be entitled to easier-to-read disclosure statements. But "easier," in the world of home mortgages, doesn't mean self-explanatory. The Department of Housing and Urban Development has published 52 pages of frequently asked questions on its Web site, trying to clarify the rules for brokers. (see here.)
For consumers, the rules usher in two new basic disclosure forms and provide penalties for lenders who lie. The first new disclosure -- called a good-faith estimate -- is given to you while you're still shopping. The second one shows up when you are wrapping up the details and about to sign on the dotted line. This is known as a settlement statement, and it will help you compare what you were promised with what you got.
GOOD-FAITH ESTIMATE
There are a variety of new disclosures on this good-faith estimate, but the ones to watch fall into three categories -- the loan summary, the charges for settlement services and the trade-off table.
The loan summary spells out how much you're borrowing, the term of the loan (or number of years you're paying) and the initial interest rate on the loan.
If the loan rate is adjustable, this summary also graphically illustrates when the rate can be altered, how high it can go at its first adjustment and how that rate hike would affect your monthly payments.
This section also demands that lenders include a worst-case scenario that spells out just how high the loan rate and payment can rise over its lifetime.