If you are a buyer that is planning to purchase this summer or a seller that will be closing on a home after August 1st you should be aware that new government regulations will be making changes to the closing process that may effect when you finally close on the home.
The largest changes will be related to the final accounting of costs at closing. When a buyer applies for a loan they will now be given a Loan Estimate detailing all their costs to purchase. They must get this within 3 days of making a loan application, and if there are any of a number of changes during the mortgage process it must be resubmitted to the buyer. The buyer must have 3 days to look this over before any of the next steps towards closing can be taken.
Then no less than 3 business days before closing the lender must issue a Closing Disclosure. This takes the place of the document formally known as a HUD-1 Settlement Statement, and it looks pretty similar. The important point is that the buyer must have it no less than 3 days prior to closing and it can no change substantially from the loan estimate they were given.
This may sound complicated, but here is the thing that buyers and sellers need to know, right now it is common practice for the HUD-1 Settlement Statement to show up just a day or even an hour before closing. The new rules mean that if the lender doesn’t get the Closing Disclosure to the buyer 3 business days before closing there will not be a closing! It doesn’t matter if the truck is packed, the lease is expiring, the kids have to start the first day of school… there will not be a closing. It means that if the closing disclosure shows up on Thursday, the first day to close will be Monday (remember this is business days, Sundays and Holidays don’t count).
While it is good that both buyer and seller have more time to know what their costs and charges are, there will no longer be the last minute, slide in sideways closing that unfortunately seem all too common as last minute appraisal, walkthrough and lender items are checked off the list.
If you apply August 1st your loan will apply under the new rules. And the new rules mean even bigger changes for the banks, lenders and settlement companies that will go unseen to buyers and sellers.
How do you avoid these problems and delayed closings? Ask your agent. Truth is that while we may not say it loudly, we do know what lenders close smoothly and on-time, we know what settlement companies do and don’t have their act together and we do secretly sigh when our buyer’s come up with pre-approval letters from lenders that we know don’t have it together, and settlement companies that aren’t getting ready. Lenders and settlement companies that were just squeaking by under the current rules are going to cause big delays on closings if they aren’t ready for what is coming August 1st.