Home > 2016 > Mortgages

Have Mortgage Rules Made It Tougher to Buy a House?

Advertiser Disclosure Comments 0 Comments

The “Know Before You Owe” mortgage rules that went into effect last October have slowed the homebuying process a bit, but overall it hasn’t made it more difficult — for buyers and sellers, anyway — according to mortgage adviser Casey Fleming.

“I have seen homeowners frustrated because the process took longer than they thought,” Fleming, author of loanguide.com, said. But buyers and sellers have extended their contracts “in every single deal that I’ve ever been involved in.”

Those delays stem from the new rules, which require additional paperwork and disclosures for lenders. The new, standardized forms spell out exactly how much a borrower must pay for closing costs and how much each monthly payment will be as the loan ages and potentially adjusts, right up until its term ends.

They’re great changes for buyers because they make the total cost of the mortgage very clear before they finalize the purchase. Lenders, however, have been “in a tizzy” over the changes, Fleming said.

“The problem is that there are very severe penalties (for lenders) for not getting it right,” Fleming said, offering an example of a lender who, because of a math error in determining the lifetime costs of an adjustable-rate mortgage — part of the new paperwork and disclosure rules — had to eat about $15,000 because of the error, even though it would have had no financial impact on the borrower.

In a nutshell, borrowers must now get the new standardized forms at least three days before closing on their loan. Before, changes could be made right up to and even during the closing.

Before the change, homebuyers received the “HUD-1 Settlement Statement” — short for the U.S. Department of Housing and Urban Development — at closing, when they were already busy signing dozens of forms. (Note: It was always possible to ask for a preliminary HUD-1 several days before closing and some mortgage lenders did provide advance copies.) The HUD-1 looks a bit like an accountant’s ledger or an IRS tax form. Borrowers were also presented with a separate Truth in Lending Act (TILA) disclosure.

Both the HUD-1 and the TILA disclosure have now been replaced by a single “Closing Disclosure” form. This form is still several pages long, but designed to be easier to read. The cover page includes clear representations of monthly payments, total payments, closing costs, prepayment penalties, balloon payments and potential interest rate changes during the life of the loan. Everything on page one of the document is a direct response to complaints about many practices that tripped up consumers during the housing bubble.

The rest of the document bears similarity to the old HUD-1, with borrowers’ details on one side and sellers’ details on the other. Late fees and other terms follow. There’s an easy-to-use interactive guide to the paperwork on the Consumer Financial Protection Bureau website.

While lenders are still adjusting to the changes, Fleming said the processes should be smoothed out over the next several months. Overall, Fleming thinks the clarity of the new rules combined with the easing of mortgage underwriting through lower down-payment requirements and mortgages becoming available for people with lower credit scores make it a very good time for buying a new home. (You can check your own credit scores for free on Credit.com to see where you stand.)

“I see homebuying becoming far easier and far more possible than it was before,” Fleming said. “And from a consumer perspective, these new rules — they’re not perfect, but I see them giving the consumers more confidence in terms of their decision-making process because they’re going to see what they’re really spending and not just looking into some murky pond.”

If you want to get an idea of how much home you can buy, you can check out this home affordability calculator.

More on Mortgages & Homebuying:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team