About 30 years ago, the federal government decided to attempt to bring more disclosure and transparency to the mortgage loan process. It was part of the ongoing efforts at consumer protection that has been a long-standing mission of the government. Unfortunately, the four different forms that were developed by two different federal agencies often resulted in more confusion than understanding on the part of America’s homebuyers.
Fast forward to 2008 when some property values declined, many homeowners were left owing more on their mortgage than the home was worth. In some cases, homeowners may not have fully understood the terms of their mortgage loan. To further protect consumers, in 2010 Congress passed the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, which established the Consumer Financial Protection Bureau (CFPB).
In addition to other new rules and regulations for other parts of the financial industry, the CFPB was directed to combine the disclosures required under the Truth in Lending Act and the Real Estate Settlement Procedures Act. This is being done in an effort to simplify the process and assist homebuyers in getting a clear picture of the terms of their mortgage and their obligations under it. These new forms go into effect on October 3 and will change many aspects of the lending process for homebuyers.
One of the most significant changes will affect buyers when they apply for a loan. If you have bought a home in the last few years, you may remember when you applied for your loan, your lender provided you with a good faith loan estimate and a truth-in-lending disclosure that provided the details of the cost of the loan. Under the new guidelines, homebuyers will receive one loan estimate form from the lender. This form will be sent to the borrower within three days of the loan application submission. The form details the loan’s key features and risks. The borrower is not obligated to the loan offered by the lender and only owes the lender for the credit report. The loan offer is good for 10 days and the borrower is encouraged to shop for loans from other lenders. The good news is the borrower will not owe any money to the lender until the loan that is being offered is accepted. The bad news is the lender cannot begin processing the application until the buyer accepts it.
Real estate sales Contracts utilized by Realtors in this area contain language that gives the purchaser a period of time to determine if they can get a loan. Under the new guidelines, real estate agents will probably recommend you ask for at least 30 days to obtain a commitment for financing. So, while comparison shopping can be a good idea, it is important you make your decision quickly so the loan process can start in a timely manner.
While the interest rates, costs and fees are important, it is also essential to choose a lender that can get you a commitment for financing within the timeframe on the Contract. Remember, while the seller may allow you additional time to pursue financing, he is not obligated to extend any provisions of the Contract. Your real estate agent can help you determine the customer service track record of the lender you are considering.
If you have some unusual circumstances, such as self-employment, past credit issues, multiple sources of income, varied job history, legal judgments or other issues, talk with your agent. She may suggest you chat with a lender before you look at houses to get a better idea of what you can afford and how long the lender will need to process your application and give you a mortgage commitment.
To meet the Contract timelines, it is also important the appraisal, building inspection, title and survey are ordered as soon as you have a contract with the seller so any negotiations that might affect your loan, such as a seller credit, can be completed early and closing delays can be avoided. It is important to remember these charges are part of the home buying process and you will be responsible for them even if you end up not closing on the purchase.
The new rules also require you receive the Closing Disclosure Form three business days before the closing. This form is a combination of the old HUD-1 closing statement and the Truth-In-Lending disclosures. This form is designed to help you better understand all the costs of the transaction. It should be very close to the figures on the loan estimate form you received earlier in the process. If there are any unresolved issues that at the last minute substantially change these figures, the form will have to be reissued and a new three-day waiting period goes into effect. Therefore, it is important to resolve any issues and seller negotiations early in the process.
It is hoped the new forms and rules will help homebuyers better understand their obligations and ensure they have the opportunity to make the right choices. Having an experienced real estate agent beside you is more important than ever with these new rules. Area Realtors have been going through months of training in preparation to help you through the new process.
Remember, not all real estate agents are Realtors. Be sure to ask your agent if he is a member of the St. Charles County Association of Realtors.