It is often said that the closing process is second only to a death in the family in terms of stress.
Here it is: the end of the line for buying a new home. You walk into the settlement office and are faced with a stack of papers you do not understand. You have maybe an hour to look them over and sign or initial each one, finalizing what is probably the biggest financial decision you will ever make.
No wonder more than half of all recent buyers in a survey conducted for Chase, the New York commercial bank, wish they had been better prepared for the entire home-buying process. A good many specifically cited the closing as a problem area.
A lot of that consternation should go away beginning in August 2015, when lenders will be required to provide borrowers with a new closing disclosure form at least three full business days prior to closing.
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The new form will combine two important documents – the Truth in Lending (TIL) statement and the HUD-1 closing sheet – and will give borrowers some breathing room to review the numbers and ask questions.
But that’s only one of the so-called closing process “pain points” identified by the Consumer Financial Protection Bureau in a recent report. Here’s what to expect when you close on your new house:
• Numerous documents. The sheer size of the closing package is formidable and often overwhelming. The number of documents can range from 50 to 100 pages – sometimes more, according to the CFPB.
Documents in the closing package tend to fall into four categories: federally mandated, state mandated, contractual forms and lender documents. But very often, they are redundant.
• Incomprehensible. A frequent consumer gripe is that the documents range from difficult to understand to downright incomprehensible, and a good many settlement providers agree.
Typically, the documents are designed by and for lawyers, not for the average borrower. In particular, according to the CFPB, the note, security instrument and the aforementioned TIL statement and HUD-1 form are all heavy with legal jargon or confusing terms.
The agency conducted extensive consumer research to design the new integrated closing disclosure, which must be used starting next summer. But many other forms are confusing, adding to stress at the closing table.
• Too fast. Another point commonly cited by consumers is that the 60 or 90 minutes reserved for the closing is hardly enough time to read and digest all of the documents. Even when consumers encountered discrepancies that made them uneasy, the CFPB found, they often felt pressured to sign the papers during the allotted time to avoid delaying the closing or even losing the house.
The agency found that the allotted time to review and sign all the papers is particularly insufficient to make certain the fees and rates on the closing sheet – the HUD-1 – match those quoted by the lender in the Good Faith Estimate they received when they applied for the mortgage.
Again, that should become much easier when the new, combined disclosure form takes effect. Until then, borrowers would be well-served to demand that their lenders give them as many documents in advance as possible, so they have time to read them, ask questions and digest their meaning.