Everytime I stop and think about Closing Time, my mind immediately goes to the Semisonic song that closed out the evening of my highschool prom! “You don’t have to go home, but you CAN’T STAY HERE.” And, oh, how sad would it be if you sold your home and then couldn’t close and move into your new one! You might hear that message exactly . . . “you CAN’T STAY HERE.”
Are you hoping to both execute a sale and a purchase on the same day? Then read on!
As we briefly mentioned in our last blogpost, this October may bring with it some change to the way that real estate transactions are closed. A new law was created in response to the financial crisis of 2008–and, wait for it, the name is a mouth-full: The Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act will change the ways in which financial markets are regulated, which is a very good thing considering our not-so-distant financial past. Up until the market crashed, lenders were creating mortgage loans with the goal of eeking out as much interest as possible from buyers. The Dodd-Frank Act is supposed to bring that kind of lending to a screeching halt–which is not a bad thing. So, how does this play out, you may ask? Well, the Consumer Financial Protection Bureau (CFPB) has created a new mortgage initiative, “Know Before you Owe.” The intent of Dodd Frank is to protect borrowers from the lenders and to force lenders to disclose details more fully and closing and loan details far earlier. If they don’t, lenders are left to deal with with huge penalties for non-compliance–up to $1M per day!
While these new regulations and laws are a great thing in terms of protecting you, our buyer, they also mean that change is ahead . . . and with change, comes an adjustment period. Let us give you a few of the details so you can prepare yourself:
The main two changes that will come from the Dodd-Frank Act are as follows–Paperwork and Timing.
Paperwork: Yippee for paperwork! Because of the new initiative, four different closing forms will be streamlined into two–the Loan Estimate (check here to be sure your loan looks right) and the Closing Disclosure (how to double check your numbers on your Closing Disclosure here). Starting on October 3, 2015, the Consumer Financial Protection Bureau (CFPB) will implement its new form, TRID (TILA-RESPA Integrated Disclosure), which is an integration of the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA).
Timing: Timing seems to be of the essence in real estate–especially when selling a home right before buying a new one. The second change deals with the delivery of the paperwork. The new regulation requires that the borrower has the closing statement a minimum of 3 days before closing–the hope is that this results in a better educated, more informed buyer. The drawback is that any “major” changes to the closing statement will then require an additional three days of waiting prior to closing.
Three more days? Oh dear! While this three day timeframe isn’t great, it also isn’t as bad as we had initially thought. Fortunately, most changes to the closing statement will not require the three day additional waiting period. For example, if you are going through your walk-through of your new dream home and something is different than it was previously (like, for example, your stainless steel fridge has managed to vanish–which won’t really happen, but let’s just play “what if”), you can still make that change to the paperwork and close on time. Most changes made to payments at the table (escrow, tax/utility proration, etc.) will also avoid the three day review. Sit down to closing and find a type-o? No worries, you can make that change and keep on moving forward toward closing on your new house!
Thankfully, there are only three situations in which the lender must offer their client an additional three days to review their terms, and those situations are explained by the CFPB themselves: The additional three day review will be implemented IF:
- The APR (annual percentage rate) increases by more than 1/8 of a percent for regular loans (most fixed-rate loans) or 1/4 of a percent for irregular loans (most adjustable loans). A decrease in APR will not require a new three-day review if it is based on changes to the interest rate or other fees. Lenders have been required to provide a three-day review for these changes in APR since 2009.
- A prepayment penalty is added, making it expensive to refinance or sell.
- The basic loan product changes, such as a switch from fixed rate to adj
ustable interest rate or to a loan with interest-only payments.
If you want to dig a little deeper on your own, feel free to visit the CFPB’s website and delve into their tips on Owning a Home. They want buyers to be well-informed and less-overwhelmed at closing–use their tools and peek at their website to see what they have to offer. Have further questions or want to chat with someone about what these changes may look like for you? Let us know! Kelly and Kim are happy to meet with you and talk to you more. After all, walking you through the closing process is what we do best . . . and, that’s what we are here for–to help you get the keys to your perfect new home as soon as you can!