The United States Government is trying to make the lending industry more honest and transparent in everything they are doing. In doing so, you need to become aware of some new guidelines for lending that may impact your closing date, and possibly not in a good way. This new guideline is called the HERA Mortgage Disclosure Act.
What is the HERA Mortgage Disclosure Act and how will it help me?
We’ve been seeing many new government laws and other changes occurring in the mortgage industry of late, to help ensure that the home financing process is transparent and understandable to all customers. Compliance with these new requirements is mandatory for all mortgage lenders and mortgage brokers. The goals are to help prevent deceptive lending practices and to make sure that you, the borrower, are provided with the details and the time you need to make a more informed decision about the home financing product you choose.
The details that guide loan processing timelines have changed
Historically, the closing dates on the contract determined the financing timeline, but, not any longer. From now on, both the consumers who are obtaining a new mortgage and their Realtors now need to take into account some new mandatory timelines that may impact the processing of the mortgage application.
These new guidelines went into effect yesterday, July 30, 2009, and include the following new requirements:
- When loan closings can be scheduled
- When new Truth in Lending disclosures need to be provided to a consumer
- What counts as a “business day”
- When fees can be collected from the borrower
It is now critical that you and your Realtor consult your lender first about potential closing dates for the contract in order to set expectations for everyone involved in the agreement – that means the buyer, the seller, the lender and both Realtors representing the buyer and the seller. The minimum amount of time we need to plan on to complete the loan process is at least 30 days from our initial application.
What can affect the loan timeline?
A change in any of the following during the loan process could impact your Annual Percentage Rate (APR) and therefore impact your closing date:
- Change in the mortgage product (no more shopping rates after the contract has been ratified)
- Change in the closing or signing date (addendums have often change closing dates before, now we can’t do it)
- Change in the loan amount
- Unlocked rates
- Change in fees by third parties – such as settlement agents
The interest rate on your loan impacts the APR. This means that until you lock in your rate, an exact APR cannot be determined.
What can you do to help keep the process on tract?
First and foremost, you must review the timeline and potential impacts with your mortgage professional upfront, and then throughout the entire loan process. You can keep your Realtor in the loop and informed about everything during the escrow process.
Plan on at least 30 days to complete the loan process. This is over and above the application phase, and after the contract has been ratified. Therefore, it is a good idea to ask for at least a 45 day closing rather than the old norm of 30 days.
Obtain a credit-checked pre-approval before you start to shop for a loan. This is why I never work with a client who has not been pre-approved before we go out. You know what you can afford, and I know what I can show you that you can afford. No one is spinning their wheels in the process.
Review the initial disclosures you receive from your lender. These initial disclosures include the Truth in Lending (TIL) which discloses in writing the terms and conditions of a mortgage, including the APR and other charges, so that you are clear about all of the details of the loan before moving forward. If you do not understand something, ask for an explanation and keep asking until you do understand it. Don’t be embarrassed to ask questions as you’re not a lender and do not deal with these things on a daily basis. It can become quite confusing so ask, ask, ask.
We are here to make sure your purchase is a smooth one and there are never any dumb questions in real estate. Our job as your Realtor and that of your lender, is to educate you through the process.