New rules aim to make sure buyers at least have a better understanding of the financial obligations they are signing up for when they take on a home loan.

New "Know Before You Owe" rules, which took effect on October 3rd, require lenders to provide borrowers with clearly laid out details on their loan and what it will cost them in an initial estimate and, closer to closing, a final summary. Borrowers also will have a minimum of three business days to review their final loan terms and fees before the transaction closes.

The new rules, put in place by the Consumer Financial Protection Bureau, also open the door to potential delays should factors such as a borrower's credit score change near the closing date, forcing lenders to restart the loan disclosure process.

Instead of the "Truth In Lending" document and the "Good Faith Disclosure" previously required, borrowers will now receive a "Loan Estimate" and "Closing Disclosure."

Making changes to loan terms after the closing countdown has begun could require lenders to draw up new disclosure documents and reset the loan review periods before closing. That could cause delays of from 10 days to two weeks, depending on how quickly the lender can process the new loan estimate.

New disclosures would be required if switching from a fixed-rate to an adjustable-rate mortgage or an interest-only loan.

Given that the new disclosure rules prohibit changes to the loan terms three days before closing, home buyers should consider doing their final walkthrough of the property several days before they receive their closing disclosure.

Walkthroughs typically took place on the day before or the actual day of closing. But scheduling the walkthrough earlier will give borrowers time to address potential repairs or problems that haven't been completed by the seller.

Source: NZHerald