The home buying process [download flow chart and other resources below] is a long complex process that usually starts before you talk to a lender or REALTOR®. Once you jump into the hunt with both feet, there are many moving parts to the transaction, including financing your purchase.
In an effort to make mortgage fees more understandable to borrowers, the federal government issued new rules last month which change how lenders notify borrowers of all the charges and fees associated with the new mortgage.
Of the major changes, the most important are new timing requirements and cost change tolerances.
Assuming you’re on step four of these six important steps to take before you buy, you may be talking to a lender or two about a mortgage. Because of the new timing requirements at the end of the closing process, this early stage becomes critical to keeping the transaction on track. This is when you “shop lenders” and compare the rates, terms and other costs of each lender estimate.
Once you’ve decided which lender and loan product you will use to finance the purchase, it’s safe to proceed with finding your ideal home.
Once you’ve found your ideal home, you can expect to spend about 45 days between negotiating the terms of the purchase contract, and closing. During this time, home inspections are conducted, the closing attorney starts the title search, and the loan underwriting process begins.
Side note: if you’ve never been through the underwriting process, just know it’s tedious and it’s best to practice patience. It’s also very important to respond to underwriter requests as soon as reasonably possible.
At the end of the loan approval process, approximately 40 days after you went under contract on your ideal home, the lender issues a Closing Disclosure to the borrower with the final charges and fees associated with the new mortgage. This is where the new timing requirements and costs change tolerances change the process.
“The important thing to know is that the new rules should not affect your closing date.”
– Chris Tilley, Regions Mortgage
The Closing Disclosure must be issued and acknowledged as received by the borrower at least three days before closing. The three-day period is known as a disclosure period. The purpose of this period is to give the borrower enough time to review the document before closing.
Changes to Borrower’s Costs
If there are changes to the borrower’s costs of the mortgage beyond allowable limits, the new rules requires a corrected Closing Disclosure be issued with a new three-day disclosure period.
What would change the fees and costs of the mortgage, you might ask?
Whenever I have a mortgage question, I ask Chris Tilley, Mortgage Production Manager and Vice President at Regions Mortgage in Buckhead. “The important thing to know is that the new rules should not affect your closing date,” says Chris. “If the [borrower] gets the necessary documents into their loan officer within in a few days of the executed contract, there should be no delay,” he continued.
He explained that there are three specific instances the may change the costs and trigger a new disclosure:
- the annual percentage rate or lender fees are different, beyond allowable limits, than the original loan estimate
- the loan product changes, for example, the loan changes from a fixed-rate to an adjustable-rate mortgage, which changes costs paid at closing and over the life of the mortgage
- a prepayment penalty is added, which most lenders don’t charge anymore
Now, at this point in the buying process, it is not likely that these issues would arise. Why? Because you’ve already chosen your lender and decided which loan product you will use way back in the early steps of your home buying process.
You almost have the keys!
Finally, it’s closing day. The good thing about having the Closing Disclosure three days before closing is you completely understand the terms of your loan. You also know exactly how much cash you will need to wire to the closing attorney days before you get to the closing table, which used to not be the case.
- Home Buying Process Flow Chart (PDF)
- New Loan Estimate Sample (PDF)
- New Closing Disclosure Sample (PDF)
If you have a personal story about closing under the new rules, please share in the comments!