New federal rules protect home loan applicants-President's message
New federal rules protect home loan
applicants
President’s Message
Chris Sloan
With the implementation of new
Federal Reserve regulations, home buyers now have a set of new protections and
disclosures when they shop for a home loan. The rules, which took effect July
30, are designed to help consumers better determine whether a particular
borrowing transaction is right for them.
The disclosures are part of
Regulation Z, the consumer protection provision of the Truth in Lending Act.
They include a number of timeframes designed to give consumers the chance to
review loan and other related documents. While the new measures are meant to
provide more protection to consumers, home buyers should also know that the new
requirements could potentially delay their scheduled closing dates.
Today I’ll review the new requirements so
you’ll know what disclosures you should receive when applying for a home
mortgage as well as the timeframes you should expect in the mortgage
application and home-buying process.
The new Truth-in-Lending
requirements apply to all mortgages secured by the borrower’s home,
including primary and second homes as well as refinancings. One of the key changes
to the consumer-protection rules is a requirement that the lender provide a
good faith estimate of all your projected mortgage costs within three days of
your loan application.
Except for a fee for obtaining a credit report,
lenders now cannot collect any fees until you receive and sign these disclosure
documents. That means you won’t have any up-front application charges
until you’ve received the Truth-in-Lending disclosures.
Another provision is the requirement that a home loan
cannot close until the borrower has had seven days to review the initial
disclosures.
The new regulations also require
lenders to disclose if the annual percentage rate on your loan changes by more
than 0.125 percent from the amount stated in the initial disclosure. The APR includes
not only the interest rate but other costs related to settlement. That means
there could be changes if you lock in your interest rate after your initial
application, if you chose a different product or if a third-party vendor
changes its fees.
If there is a change, the lender will be required to
provide a corrected disclosure, and you will have three days to review the new
disclosure before you can close on the loan. Keep in mind that this extra
disclosure, if needed, could push back your closing date.
Borrowers should also note that
the mailing timeframes could affect their closing dates as well. For example,
if you applied for a loan over the phone, the lender would have at least three
business days before he would have to mail the good faith estimate, and another
three days would go by before the document would be considered received by the
consumer. That means if you applied over the phone and everything went
perfectly, the earliest closing date would be 11 days after the application.
Another new rule requires
lenders to provide a copy of the appraisal to the home buyer a minimum of three
business days before closing so the borrower has a chance to review it. Lenders
must also provide a copy of the HUD-1 form, the document that states all your
final costs, at least three business days prior to closing. Previously, this
was only required one day before closing.
As you can see, many of these
new timeframes and required waiting periods could affect your closing date.
That’s why many mortgage lenders are advising home buyers and sellers to
plan for at least 30 days for the transaction to close. The complexity of the
new regulations also makes it more important than ever to work with a Realtor
who will help you consider these new timeframes as you work out the details of
your transaction.
While there will undoubtedly be some delays because of
the new mortgage rules, make sure to use these new consumer protections to your
advantage. Carefully read and consider each disclosure and use them to help you
purchase the mortgage that is best suited to your situation.