New Truth-in-Lending Protections Take Effect

They haven't drawn a lot of attention, but some new consumer protection rules under the Truth in Lending Act took effect July 30. Here's a rundown on how they'll affect you if you're planning to purchase a new home or refinance your current mortgage.

Earlier disclosure of costs

Lenders must now provide mortgage applicants with an initial disclosure of your estimated mortgage costs within three business days of submitting your application. These include the good-faith estimate of closing costs and the Truth in Lending disclosure of the loan's annual percentage rate, or APR. The APR may be higher than your mortgage interest rate due to the inclusion of loan discount points and other finance charges that are bundled into the loan.

Fees postponed

Lenders may no longer charge application fees or other costs until after you've received and signed off on your initial disclosure documents. The one exception is a reasonable charge for obtaining your credit report, which is needed to prepare the disclosure. So if you discover something in your initial disclosures that makes you decide not to pursue the loan, you're no longer on the hook for what could be several hundred dollars in application costs.

Waiting period before closing

Except under emergency circumstances, the loan may not be finalized (closed upon) until at least seven days after the initial disclosures are received. This is intended to prevent consumers from being rushed into a decision and give them time to properly analyze the information, although some will likely regard it as an inconvenience. This also allows a last chance to look around and do some final comparison shopping before closing.

Delivery of appraisal

A copy of the property appraisal must be delivered to the mortgage applicant at least three days prior to closing, although borrowers may choose to waive this right. Previously, mortgage applicants had to specifically request a copy of the appraisal, and some may not have been aware of their right to do so.

New waiting period if APR changes

This is a big one. The new rules require that, if the actual APR on the loan comes in at more than 0.125 of a percentage point higher than the initial disclosure (for example, 6.126 percent instead of 6.00 percent), a new seven-day waiting period is required. Although some lenders complain that this will create unnecessary delays in the event of small changes or mistakes, the intent is to prevent consumers from being surprised by unexpected, last-minute fees at closing, which has been a frequent consumer complaint. Final disclosures, including the actual APR, must now be delivered three days prior to the closing.

A longer mortgage process

One outcome of the new rules is that it will likely take more time to apply for and close on a mortgage than before, regardless of whether it is for a home purchase or a refinance. Many lenders are recommending that buyers allow between 30-45 days for the loan closing, and seek to lock in rates accordingly.