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.
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. Together, they act as a complex set of alternating pieces, each contingent on many variables associated with the mortgage.
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.
Two of the largest contributors to the number of forms are state governments and Uncle Sam. About 95 percent of all home loans are originated in states that require additional documentation over and above what the lender needs. And different versions of essentially the same document are often required for loans backed by the federal government.
-- 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.
-- Timing. In its year-long look into the closing process, the CFPB found that the timing of document delivery wasn't just an issue for consumers. It is even a challenge to notaries and settlement agents.
Closing documents change hands many times before the big day, and a frequent complaint the CFPB heard was that the previous party in the process often delivered documents behind schedule. Such delays can cause a domino effect, pushing back each subsequent step and forcing each party to rush through the documents and send them to the next.
-- Errors. Often, the rush to get the package to the closing table on time results in errors, yet another pain point. Even a small slip in the paperwork can result in long delays. Even a common error, such as a misspelled name or an omitted spouse, requires closing agents to send back the entire closing package for correction.
If one or more errors aren't discovered until the closing -- a frequent occurrence -- the transaction cannot move forward as scheduled. You'll have to wait several hours for the mistakes to be corrected, and sometimes you might have to return another day to complete the process.
That creates a particular hardship for buyers who have the kids on their arms and the moving van waiting to drop off their furnishings at their new digs.
-- 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.
You probably won't be able to get your hands on every piece of paper in the closing package early. But at the very least, you should receive the standard disclosure forms that require nothing more than a read and your signature.
If you wait, you could easily be overwhelmed.