From weeding through paperwork to searching for optimal loan terms, purchasing a home can be as mentally taxing as navigating a foreign country without knowing the language. Let’s face it: Channeling your energy toward finding the perfect home in Atlanta, GA, or Sacramento, CA, is a much more pleasurable experience than agonizing over potential lenders and loan applications.
Yet, the loan and lender you ultimately choose should be just as important as the neighborhood you explore or the home on which you put an offer; therefore, the amount of legwork for each chore should be comparable. In an effort to bolster consumer education, improve the loan-shopping process, and cut through the jargon on loan documents, the Consumer Financial Protection Bureau (CFPB) last year established the Know Before You Owe mortgage program. (Now there’s really no excuse for not doing your homework before buying a home.)
Here’s a quick rundown on what Know Before You Owe entails — and what mortgage questions you should ask along the way.
Prior to October 2015 and the start of Know Before You Owe, loan applicants would have received two forms upon applying for a loan: a Good Faith Estimate and a Truth-in-Lending disclosure. Created by two separate federal agencies and filled with overlapping information, the forms made it difficult for consumers to compare everything from loan amounts to interest rates.
With Know Before You Owe’s streamlined Loan Estimate, it’s easier to find pertinent loan information, which in turn can encourage comparison shopping instead of hindering the process. (You can explore a sample Loan Estimate on the CFPB website.)
According to a survey conducted by the CFPB, only 47% of consumers shop around for a home loan, and for those who do, rates can vary by as much as a half-percent from lender to lender — a substantial difference over the life of a loan. In addition, some banks or mortgage lenders might not have access to the type of mortgage that would be the best fit for your specific situation. But without a little extra searching and knowing to ask the right questions, you would never be the wiser.