There are apparently some new financial guidelines coming down the pipeline that you may want to be aware of, specifically dealing with the Truth in Lending disclosure that you would receive from your lender. I’ll get more in detail soon when I learn more about it, but below are the basics that I was told by a loan officer a day or two ago.
One of the most confusing documents for buyers in their closing package is the Truth in Lending Disclosure. In a nutshell, this disclosure breaks down your mortgage into specific financial terms. It lays out the amount your mortgage is for, the total amount you would end up paying if you kept the loan for it’s entirety (a number you don’t want to look at 
), and an Annual Percentage Rate, or APR. Seven out of ten people that look at the APR immediately think something is wrong.
For example, you may have a loan with an interest rate of 5.25%. Your APR, on the other hand, may be something like 5.5% or 5.375%. Don’t worry when you see this number, it’s not your interest rate. Your APR is a number expressed as percentage that takes into account closing fees, lender fees, the interest rate, and any other things that can contribute to how much a house actually costs to buy. This is the best way to compare mortgages. So, if mortgage A has an APR of 5.5% and mortgage B has an APR of 5.25%, you’ll know that mortgage B is the better loan. Basically, don’t freak out when you see that the APR is higher than your interest rate. Your interest rate will stay the same.
What do the new guidelines have to do with the Truth in Lending?
The new guidelines would state that if the APR changes at any time during the loan process (from application to closing) by more than 1/8 of a percent, the purchaser must have 7 days advance knowledge prior to closing. It’s actually not a terrible new guideline. I can see that it would be very helpful in some situations. I just don’t know how well the real world application of this will work.
What are the problems with this?
Forget about quick closings. Once an official APR has been established, it will take 7 days from that point to close. If it ever changes by more than 0.00125%, higher OR lower, that 7 day clock starts again. Also, with the fact in mind that most fees aren’t gathered, compiled, etc. until a day or two before closing, this could throw a wrench in a lot of operations.
Again, I don’t know as much as I should about all of this just yet, like when or if it will take effect, but I will learn more soon.
