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The “know before you owe” rule in real estate

| May 3, 2021 | Real Estate

“Know before you owe” is a rule about mortgage disclosure that anyone buying a home in New York should be aware of. Before you finally close on the mortgage, it gives you three business days to ask whatever questions you need to and look over your closing disclosure.

Replacing four forms with two

The closing disclosure form is one of just two that you get under the rule. The second is a loan estimate form. Previously, there were four forms to review. The new forms are streamlined. Among other things, “know before you owe” is designed to help protect individuals against predatory lenders. The rule went into effect in 2015.

Reasons to reset

Prior to putting this rule in place, you had to specifically ask for a HUD-1 Settlement Statement, and the lender was only required to give it to you 24 hours ahead of time. Now, you have more time, and the three-day period resets if there is a change in the basic loan product, if there are certain types of annual percentage rate increases or if there is a new prepayment penalty. Other types of changes do not reset this period.

Easier to understand

The Consumer Financial Protection Bureau created these forms by testing them with consumers among others. People found the new forms easier to use and understand, and they were better able to correctly reply to questions about these forms than on the older ones.

You may want to work with an attorney when you are involved in a real estate transaction. This can help you avoid certain pitfalls and ensure that you understand the ramifications of all the documents you are signing.