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Significant Changes On Closing Day In South Jersey
On October 3, 2015, closing day in South Jersey will be easier on today’s home buyer. Significant changes to the new Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) will take effect October 3, 2015.
Eight to ten years ago, millions of home buyers took on mortgages they did not understand. The mortgage process was complicated and difficult to understand. As a result, many lost their homes in short sales or foreclosure. This housing market crisis led the U.S. Consumer Financial Protection Bureau (CFPB) to impose changes that would address these problems and improve the home buyer’s understanding of the mortgage process. It is the CFPB’s desire to help prevent the loss of homes to short sales or foreclosure. The changes the CFPD made to the closing process will be significant.
Significant Changes to Forms
As part of the significant changes established by the Consumer Financial Protection Bureau in accordance with the Dodd-Frank Act, the Good Faith Estimate, Truth-In-Lending Document and HUD-1 Settlement Statement will be replaced. Home buyers will see two new forms: loan estimate form and closing disclosure form.
The new loan estimate form will be:
Summarize the terms of a mortgage
Estimate loan fees and closing costs
Clearly state the loan terms and estimated closing costs
Explain what the loan terms and estimated closing costs are
The closing disclosure form will be:
Easier to read
Provide an account of the whole real estate transaction, from beginning to end, in detail. This will include loan terms, fees and closing costs.
Changes may occur between the time a home buyer applies for a loan and when closing day happens. The new forms have been designed to make comparing loan options and understanding any changes that may occur easier for home buyers.
These are dramatic and significant changes to the old way of handling transactions. Again, the CFPB’s goal is to make closing easier for home buyers and make it easier for consumers.
Significant Changes With the Addition of the New 3-Day Rule
After October 3, 2015, when these significant changes take effect, home buyers will be given three days to review paperwork and ask questions after applying for a home loan. No more rushing through closing without understanding what is going on in the mortgage process! This change is the most significant change made to mortgage closings. It will have the greatest impact on home buyers.
Home buyers will have plenty of time to read the loan terms and closing documents thoroughly thanks to the new 3-day rule. It will help to eliminate surprises at the closing table. Home buyers will have time to call their real estate agent, lender or title company and ask for an explanation of something they do not understand.
Lenders must provide a loan estimate to borrowers within three business days after they apply for a mortgage.
Lenders must provide a closing document three business days prior to closing.
During a pre-approval process, lenders can generate a “fees worksheet” or something similar to help borrowers prepare for their financial needs at closing. An official loan estimate is generated only after a loan application for a specific property is made.
What goes into a loan application is being redefined by requiring lenders to provide a loan estimate to borrowers within three business days after home buyers apply for a mortgage. The borrowers’ names, income, Social Security numbers, property address, estimated value of the property and loan amount are required on a loan application. Once the lender has that information, the lender has three business days to generate a loan estimate for the borrowers. At that point, the borrowers must sign an Intent To Proceed form to start the underwriting process.
The only fee lenders can charge for is a credit report. They cannot require verification of any information from the borrowers before a loan estimate is generated and the Intent to Proceed form is signed. Nothing else can be done and no other fees can be charged until the borrowers sign that Intent To Proceed form. This allows consumers to shop around during that 10-day period for other loans and use the loan estimate form as a tool to make comparisons.
The new, significant changes imposed by the CFPB will cause lenders and title companies to coordinate with each other. However, lenders are ultimately held responsible for meeting regulation standards.
Until the significant changes take effect on October 3, 2015, title companies have been preparing and delivering closing documents to borrowers. Lenders will now be taking on the preparation themselves. Lenders will be held responsible for meeting deadlines.
These significant changes should be great for home buyers. Home buyers will feel more confident about closing and understanding their loan terms. However, while the responsibility of putting these changes into practice falls on lenders and title companies, home buyers should be prepared for possible delays. Implementing change means there will be kinks that need to be worked out. Home buyers can take the following steps to avoid delays on closing day:
Familiarize yourself of the significant changes that will take effect October 3, 2015
Work with a lender and a title company who are very familiar with the new, significant changes
Realize what a great opportunity these significant changes are for today’s home buyer. They are providing plenty of time to read and understand loan terms and closing documents
Review documents right away
Compare documents to the loan estimate. Make sure they match. Catching errors right away will help avoid delays in the closing process
Ask questions. Rely on the lender and real estate agent for help with understanding the documents
Lastly, watch for the word “optional” on the new disclosure form. The new forms shared by the National Association of Insurance Commissioners and title companies use the term “optional” in reference to the purchase of owner’s title insurance. See this example. Purchasing title insurance has always been optional, but some fear putting “optional” right on the disclosure form may encourage home buyers to disregard and overlook it.
Some believe it would be better to state “recommended but optional” on the new forms. They believe it would encourage consumers to purchase owner’s title insurance.
Because it is important to protect equity in a property, homeowners are usually advised to purchase their own title insurance for protection of the investment they have in their home. Title insurance protects the lender in case there is a title dispute in the future.
The largest emotional and financial transaction of a person’s lifetime is the purchase of a home. As a home buyer it is important to educate yourself on the home-buying process. Visit the CFPB site and educate yourself about the significant changes coming to the closing process on October 3, 2015.
If you have questions about these significant changes coming to the closing process on October 3, 2015, call (856) 297-6827 or email [email protected] Get the answers you need from Sam Lepore of Long and Foster Real Estate Inc in Moorestown, NJ.
Sam Lepore is a Realtor with Keller Williams in Moorestown, NJ. Call him today at 856.297.6827 ....