Read Before You Sign
Understanding Loan Disclosures
One of the unofficial rules of adulthood is to never sign anything you haven’t read first. But when it comes to loan disclosures, many adults assume they’ll never understand what lies therein, so they skim the stack of papers, sign their name and hope for the best.
Fortunately, changes implemented in fall 2015 under the Dodd-Frank Act make loan disclosures more straightforward and informative, says Roger Jones, manager of residential lending at Zions Bank.
“These changes put the consumer in charge and in a position where they have all the information they need to make a decision,” Jones says.
A True Estimate
Ten years ago, consumers received a good faith estimate at the beginning of the loan process. That estimate was “almost done on the back of a napkin,” Jones says, and lenders weren’t held accountable to those numbers in the end. Now, under the Dodd-Frank Act, lenders provide consumers with a loan estimate disclosure that includes zero tolerance for almost all lender fees.
“That means certain fees can’t change,” Jones explains. “If the lender is wrong, they have to pay for it.”
The intent to proceed disclosure sent at the beginning of the loan process is another important protection. Signing this document signifies that you’ve reviewed the loan estimate — you may have several from different lenders as you shop around for the best rate — and intend to proceed with a particular loan. Without a signed intent to proceed, the lender cannot proceed, Jones says. According to the Consumer Financial Protection Bureau, a lender is required to honor the terms of the loan estimate for only 10 days. If you don’t respond within that timeframe, a lender may close your application.
“Consumers have the ability to shop for a loan without being unduly pressured to proceed,” Jones says. “Fees can’t be charged before then.”
Three days before closing you’ll receive a closing disclosure. Consumers must certify they have received the disclosure in order to close on their loan. Jones recommends reading and comparing the closing disclosure to the original loan estimate; many of the numbers by law cannot change, including the lender fees and origination fees.
“This ensures consumers aren’t in a situation where they don’t understand the fees at closing,” Jones says. “This has been a very positive change. It’s helped people to have a much better grasp on their loan.”
If the numbers don’t make sense or terms are vague or unclear, speak up.
“Don’t be afraid to ask questions,” Jones says. “I think a best practice for mortgage loan officers and consumers is going through everything together prior to closing. You don’t want to get to closing and have that be the first time you look at these documents.”
Ask your mortgage loan officer: “What does finance charge mean?” “What’s the reason I need title insurance?” “What’s included in the loan origination fees?”
“The tools have been placed in consumers’ hands to decide on the best loan for them,” Jones says. “They need to know how empowered they really are.”