Can a New Government Toolkit Simplify Homebuying?

Thinking about buying a home? A new, free toolkit might help you make better decisions, and avoid falling into common traps in the process.

The Consumer Financial Protection Bureau released its new “Your Home Loan Toolkit” Tuesday, with the goal of making home purchases as easy as 1 – 2 – 3. As in, 1: Get the best mortgage; 2: Understand closing costs and 3: Own your home.

The toolkit is being released as part of the CFPB’s “Know Before You Owe” initiative. More important, it integrates new forms and procedures that will take effect in August which are designed to make lending simpler for buyers. For example, the old “HUD-1” settlement form given to shoppers at closing will be called a “Closing Disclosure,” and be much more consumer-friendly. And the “Good Faith Estimate” is being replaced by a simpler “Loan Estimate” form. The consumer toolkit was released today to give lenders time to plan for the changeover.

“This toolkit is a great resource for consumers navigating the home-buying process, and will help consumers make well-informed decisions about the biggest financial transaction of their life,” said CFPB Director Richard Cordray. “The new mortgage disclosure forms coming in August will help consumers comparison shop for mortgages and avoid surprises at the closing table.”

The toolkit is broken into three areas.

The “Choosing the best mortgage” section includes:
1. Can you afford the home? Contains worksheets for total monthly payment, percent of income and monthly expenses.
2. Understanding credit reports and credit scores.
3. Mortgage types, with warnings about risky features like balloon payments
4. Picking a down payment amount
5. Points vs. rate
6. How to shop around and compare total loan costs, including items like title insurance.
7. “Loan estimate” vs. “intent to proceed,” and rate lock vs. floating rate
8. How to avoid common pitfalls

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“Your closing” includes:
1. Explanations of escrow agents, settlement agents and attorneys
2. What home inspectors and appraisers do
3. Why you’ll get a second loan estimate
4. What do with the “Closing disclosure,” which you should get three days before closing

“Owning your home” includes:
1. Don’t fall behind, and what to do if you do
2. Keep up with ongoing costs, from insurance to repairs
3. Do you need flood insurance?
4. Understanding refinancing and home equity lines of credit

Before you begin the homebuying process, it’s important to check your credit reports and credit scores to get an idea of where you stand — and how it could affect your ability to buy a home, as well as how much house you can buy. You can get your credit reports for free every year on AnnualCreditReport.com, and you can see two of your credit scores for free, updated every 14 days, on Credit.com.