On August 1, 2015, the way your loan is closed, for most residential mortgages, will drastically change. There is a new rule on the horizon created by Congress and the Consumer Financial Protection Bureau. This rule will change how you close most residential transactions involving a mortgage loan. For an overview watch my video with Chuck Wiseman of Wiseman & Reilly Law below.
What are these changes?
The government wanted to ensure buyers were not confused between the new Loan Estimate and the 'worksheets' lenders provide before your application. At the top there will now be a disclaimer that says:
"Your actual rate, payment, and cost could be higher. Get an official Loan Estimate before choosing a plan."
The Rule, as it is known, will now require lenders to provide buyers with a Loan Estimate within three business days after the lender receives six items; the buyers name, income, social security number (required to obtain a credit report), estimated value of the property, property address, and the loan amount you are looking for. What this equates to is you submitting less information than you do now in order to obtain a GFE (Good Faith Estimate).
For any estimated charges on the Loan Estimate the Rule now imposes strict accuracy requirements. Various items to be disclosed are: charges paid to the lender and mortgage broker-affiliates, the lenders own charges, charges which the consumer is not allowed to choose their provider cannot change from the estimates (unless there are limited circumstances). Should any charges increase the lender will be required to cover these increases; i.e. the lender is now required to obtain more accurate estimates for charges.
While it may seem a lot will change for the buyer, the onus is really on the lender in providing the Closing Disclosure. The HUD-1 which is required by RESPA is the current settlement document but this is changing August 1.
New Closing Dates. The new Rule requires the Closing Disclosure be received by the buyer at least three business days before closing. This means that your lender will be sending you the Closing Disclosure a full week before closing.
No longer will you receive the HUD-1 (closing statement) at the closing table. This change is supposed to allow you to review the final numbers prior to closing in a pressure free environment. The downside is this may delay closing on your purchase.
What about changes after the Disclosure is provided?
The potential for things to change during this process is very high and for each change your lender has to provide a revised Closing Disclosure at or prior to closing. However, there are three types of changes that will start the three day process all over again. These are 1) any change to the APR is inaccurate (more than .125% for most loans and .25% for laons with irregular payments or periods, and result from changes in lender charges or the interest rate. 2) the product type is altered; i.e. from a fixed rate to an adjustable rate mortgage) or 3) if there is a prepayment penalty added to the loan. The frequency of all three of these scenarios happening are infrequent, but if they happen they will cause a delay in closing. If you want to make any changes to your loan you should do so well in advance of closing in order to avoid any late delays.
R.I.P. 30-Day Closings
With all the communication and coordination of information that will be required to complete the Closing Disclosure as well as the lenders to provide buyers with the package a week prior to closing no longer will you be able to close in 30-days or less. If you encounter a lender that says they can you might wonder why they have so much time on their hands? The lender will more than likely need more time to make sure everything in the paperwork is correct before disclosing to the buyer. The recommendation to many buyers is for closings to be a minimum of 45 days if not 60 days.
Knowing what is coming and being prepared for it are the best things you can do to ensure you can handle what is coming in the future. Understanding closing quickly on a property now takes on a different meaning than the 'good ol days' and delays are more than likely. However, choosing a good realtor, lender and attorney (title company) can make this process as streamlined as possible.
For more information on the new mortgage disclosure rules and the Consumer Protection Financial Bureau visit www.consumerfinance.gov/knowbeforeyouowe/
PNP Real Estate
Our goal is to help you Buy or Sell your property in a timely fashion by providing you with all the information necessaryFor answers to all your questions contact us at (843)-338-6737.