Closing on a Mortgage Is About to Get Much Simpler
A new report from the Consumer Financial Protection Bureau outlines the biggest challenges consumers face when finalizing a mortgage: They're confused, frustrated and feeling pressured to sign documents they haven't had a chance to read. While the CFPB is working to improve the closing process and, as a result, reduce stress on borrowers, consumers can help themselves by asking lots of questions and being as prepared as possible going into the homebuying process, said Scott Sheldon, senior loan officer and consumer advocate in California.
"Consumers are going to need to come up with their questions," Sheldon said. "Make the lender do the initial legwork upfront. A lot of lenders feel like the consumer knows what they're doing, because it's easy for us, we do this every day."
The Problems: Obviously, most people aren't as familiar with the mortgage process as lenders, hence the complaints to the CFPB. In January, the bureau asked consumers to share the challenges they experienced in the closing process, and the CFPB's research revealed three common themes: Homebuyers felt they didn't have enough time to review closing documents, the paperwork was overwhelming and the documents were confusing and included errors. On top of that, they expressed frustration with the little help they received from mortgage and real-estate professionals when they had questions.
Some good news: Changes are on the way. The CFPB started a new Know Before You Owe mortgage initiative in November, and consumers will see the effects next summer.
The Upcoming Changes: In August 2015, buyers will receive new closing disclosures at least three business days before closing, and there will be two easier-to-understand disclosures, which should give the consumers more time to ask questions and compare costs. The CFPB is also staring an eClosing pilot program, which "is designed to enable the CFPB to better understand the role that eClosings can play in addressing consumers' pain points," according to a news release from the bureau.
"Electronic documents and e-signatures hold promise, although there's concern that click-happy consumers may simply electronically riffle through important documents rather than actually read them," Chris Birk wrote in an email. Birk is the director of content development for Veterans United Home Loans and a contributor for Credit.com.
The CFPB noted these concerns in its news release but also made the point that eClosings could be a more efficient process. Additional changes to disclosures and documents are set to take effect next summer. These should provide additional clarity for consumers. Buyers will also receive some closing documents sooner, giving them more time to compare costs and fees and get their questions answered.
Sheldon also noted that under new compliance laws, lenders can't change things at the last minute. There may be a pile of paperwork full of legalese put in front of you at the closing table, but it's all paperwork the consumers have received before, he said. "Things don't change at the 11th hour anymore," Sheldon said. "Those disclosures are very technical, in a sense, but ... as long as they (the buyers) know their purchase price, their interest rate, their terms, their monthly payment, their cash to close -- they should be focused on those things."
Providing information and documents to lenders as soon as they ask for them will help reduce stress, Sheldon added. "What the consumer can do, and I know this sounds pretty old school, is to provide everything to the lender as soon as possible," Sheldon said. "Whatever the lender wants, get it and whenever the lender asks for something, say 'Sure, what else can I get you?'"
Don't be afraid to keep asking questions, either. "Homebuyers can press their lender to obtain closing documents and other paperwork as soon as possible," Birk wrote. "Read every word and push for clear answers to all of your questions.... Homebuyers can feel a lot of pressure, especially when they're trying to pore over legalese at the closing table. Don't be afraid to raise your hand and ask for clarifications or to raise concerns.... This is one of the most significant financial investments of your life."