Buying a Home: How to Avoid a Mortgage Closing Meltdown
NEW YORK ( MainStreet) The excitement of buying a home can be quickly diminished at the closing table. After all the open houses, negotiations and pre-moving preparations, buyers face a stack of loan documents that can total more than 100 pages, many of which they are seeing for the very first time. Errors, omissions and even last-minutes changes to agreed-upon terms can haunt buyers anxious to get the keys to their new home.
In a survey of homebuyers, the Consumer Financial Protection Bureau (CFPB) found that 27% of consumers faced eleventh-hour surprises at closing. "Even if consumers encountered discrepancies that result in unease at the closing table, they often felt pressured to sign documents during the allotted time in order to avoid risking delays or even losing the house," a CFPB report, Mortgage Closings Today, states. "In the words of one borrower, 'Since the loan documents showed up at the last minute, I had no choice but to sign, even though the terms were different than was promised.'"
Much of the complexity can be attributed to the number of participants -- and their varied interests -- involved in the sale of a house; including the buyer, seller, real estate agent, settlement agent and lender. The CFPB notes that loan closing packages are also complicated by federal, state, and local regulations that require numerous disclosures, as well as pages of disclaimers added by lenders as part of their risk management processes.
In August of next year, new "Know Before You Owe" rules will require some closing information to be delivered to the borrower three business days before closing. Part of that package will be a new Closing Disclosure form that combines the HUD-1 and TIL Disclosure. It is very similar to the Loan Estimate that borrowers receive upon application, making it easier to compare any changes in costs prior to closing. The CFPB has also issued new restrictions on which costs can change and by how much, hopefully limiting surprises at the closing table.
Another innovation that may reduce the anxiety and errors of a home loan closing is a paperless, or near paperless, process called eClosing. Offering digital review of paperwork with embedded educational tools and earlier delivery, eClosings might help simplify the process and reduce errors.
"In an eClosing, documents can be electronically delivered by email or by the consumer accessing an online portal within the vendor platform," the CFPB report says. "Early delivery can give the consumer more time to read the documents and consult with family members or professionals, which will empower them to ask questions and play an active role at the closing. Second, electronic documents could provide an opportunity to embed educational tools that highlight key information or link to additional resources for consumers. Consumers would be able to reference these tools when reviewing the documents both before and during the closing."