Know Before You Owe: Making the mortgage process easier for you
Here’s what will change:
- Four overlapping disclosure forms will be streamlined into two forms, the Loan Estimate and the Closing Disclosure.
- You’ll have more time to review your closing documents. Currently, lenders must give you your HUD-1 Settlement Statement disclosure 24 hours in advance, if you request it; after October 3, you’ll receive your Closing Disclosure three business days before you sign the forms and accept the terms of your mortgage, no request needed.
Here’s how these changes will improve the mortgage process:
- The new forms will make it easier to understand complicated mortgage terms.
- The Loan Estimate makes it easier to shop around and compare loan offers from multiple lenders. Consider applying for loans from at least three lenders before choosing a mortgage so you can find the best deal for you.
- The three days required between getting your Closing Disclosure and signing on the dotted line allow you to make sure there aren’t major changes from the deal you were offered on your Loan Estimate. It also gives you time to ask your lender all the questions you might have about the terms of your mortgage and consult with a lawyer or housing counselor.
More resources to help make mortgages understandable We’ve released “Your Home Loan Toolkit.” The toolkit has worksheets and conversation starters to help you at key points in the mortgage process. You’ll receive the toolkit when you apply for a home purchase mortgage. However, you can also download it now.
In addition, while these forms make the process of taking out a mortgage easier, we have also created digital resources to help you use and understand your Loan Estimate and Closing Disclosure. These tools give you definitions of terms like “balloon payments” and “points.” They also show you where to look, page-by-page, to check that terms and numbers on both documents match up.
For a better understanding of what it takes to get a mortgage, we’ve updated our “Owning a Home” site with an overview of the mortgage process. This step-by-step guide to getting a mortgage takes you from creating a budget to filing away your important closing documents after you accept the terms and sign on the dotted line. “Owning a Home” also has tools and resources to help you learn more about your loan options, make decisions, and prepare for closing.
Housing counselors approved by the U.S. Department of Housing and Urban Development (HUD) are another great resource. They can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you. To find a housing counselor near you, use our search tool.
The new forms work Over the past four years, we’ve done extensive work, including testing the new forms with consumers around the country and getting feedback from industry. In our testing, we determined that these new forms helped people better understand the terms and types of mortgages in the market.
From our very first day as an agency, we’ve been working hard to improve your experience when it comes to purchasing and paying for your home. We’ve been working to make the market safer by educating mortgage consumers, challenging practices that are illegal under federal consumer protection law, and by enacting new mortgage lending rules. In addition, we’ve worked to get responses to your mortgage complaints, and we’re exploring ways to further improve the closing experience.
You have the right to compare offers and understand the terms before you sign on the dotted line. And the information you use should be clear and easy to understand. After four years of work, these new forms and tools will help you shop for the best deal and avoid costly surprises when you sign on the dotted line.
The mortgage process is easier when you know before you owe
Choosing the right Loan Type
Choosing the right loan type-each loan type is designed for different situations. Sometimes, only one loan type will fit your situation. If multiple options fit your situation, try out scenarios and ask lenders to provide several quotes so you can see which type offers the best deal overall.
Conventional Majority of loans
Typically cost less than FHA loans but can be harder to get“Conventional” just means that the loan is not part of a specific government program. Conventional loans typically cost less than FHA loans but can be more difficult to get.
There are two main categories of conventional loans:
Conforming loans have maximum loan amounts that are set by the government. Other rules for conforming loans are set by Fannie Mae or Freddie Mac, companies that provide backing for conforming loans.
Non-conforming loans are less standardized. Eligibility, pricing, and features can vary widely by lender, so it’s particularly important to shop around and compare several offers.
Conventional (conforming) $484,350 or less
- Most common loan type.
- Loan amount must be $484,350 or less, unless you’re buying a home with multiple units.
- If your down payment is less than 20%, you’ll typically need mortgage insurance.
- Conforming Jumbo $484,350 to county limit
- Conforming loan for amounts higher than $484,350
- Only available in certain counties.
- Maximum loan amount varies by county.
Jumbo (non-conforming)up to $1-2 million
- Jumbo loan for amounts greater than the Conforming Jumbo limit in your county, up to $1-2 million.
- Rules vary by lender, but usually need good credit and a high down payment to qualify.
FHA Low down payment
Available to those with lower credit scores
FHA loans are loans from private lenders that are regulated and insured by the Federal Housing Administration(FHA), a government agency. The FHA doesn’t lend the money directly–private lenders do. FHA loans:
- Allow for down payments as low as 3.5 percent.
- Allow lower credit scores than most conventional loans.
- Have a maximum loan amount that varies by county. Learn your FHA loan limit.
For borrowers with good credit and a medium (10-15 percent) down payment, FHA loans tend to be more expensive than conventional loans. For borrowers with lower credit scores or a smaller down payment, FHA loans can often be the cheapest option. But there are no hard-and-fast rules—a lot depends on the current market. If you’re not sure, ask lenders for quotes for both options and compare total costs to see which offers the best overall deal.
Special programs
- VA: For veterans, service members, or surviving spouses
- USDA: For low- to middle-income borrowers in rural areas
- Local: For low- to middle-income borrowers, first-time homebuyers, or public service employees
Loans are subject to basic government regulation. Generally, your lender must document and verify your income, employment, assets, debts, and credit history to determine whether you can afford to repay the loan. Learn more about the CFPB’s mortgage rules.
Ask lenders if the loan they are offering you meets the government’s Qualified Mortgage standard. Qualified Mortgages are those that are safest for you, the borrower.
Mortgage insurance: what you need to know
Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home will need to pay for mortgage insurance. Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. But, it increases the cost of your loan. If you are required to pay mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both.
Warning: Mortgage insurance, no matter what kind, protects the lender – not you – in the event that you fall behind on your payments. If you fall behind, your credit score may suffer and you can lose your home through foreclosure.
There are several different kinds of loans available to borrowers with low down payments. Depending on what kind of loan you get, you’ll pay for mortgage insurance in different ways:
If you get a conventional loan, your lender will arrange for mortgage insurance with a private company. Private mortgage insurance rates vary by down payment amount and credit score but are generally cheaper than FHA rates for borrowers with good credit. Most private mortgage insurance is paid monthly, with little or no initial payment required at closing.
If you get a Federal Housing Administration (FHA) loan, your mortgage insurance premiums are paid to the Federal Housing Administration (FHA). FHA mortgage insurance is required for all FHA loans. It costs the same no matter your credit score, with only a slight increase in price for down payments less than five percent. FHA mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment.
If you don’t have enough cash on hand to pay the upfront fee, you are allowed to roll the fee into your mortgage instead of paying it out of pocket. If you do this, your loan amount and the overall cost of your loan will increase.
If you get a US Department of Agriculture (USDA) loan, the program is similar to the Federal Housing Administration, but typically cheaper. You’ll pay for the insurance both at closing and as part of your monthly payment. Like with FHA loans, you can roll the upfront portion of the insurance premium into your mortgage instead of paying it out of pocket, but doing so increases both your loan amount and your overall costs.
If you get a Department of Veterans’ Affairs (VA) loan, the VA guarantee replaces mortgage insurance, and functions similarly. With VA loans, there is no monthly mortgage insurance premium. However, you will pay an upfront “funding fee.” The amount of that fee varies based on:
- Your type of military service
- Your down payment amount
- Your disability status
- Whether you’re buying a home or refinancing
- Whether this is your first VA loan, or you’ve had a VA loan before
