There are going to be some big changes coming to the real estate industry on Oct 3. Here’s what you need to know:
1. New forms
The HUD-1, Good Faith Estimate (GFE) and the Truth in Lending Act (TILA) disclosure are going to be replaced by two new forms. These new forms will be the Loan Estimate and the Closing Disclosure forms.
They are much more user-friendly than the forms they are replacing. You should familiarize yourself with these new forms.
2. The Loan Estimate
Currently, borrowers receive the Good Faith Estimate (GFE) and the initial disclosure required under the Truth in Lending Act (TILA). For loan applications taken on or after Oct. 3, 2015, the lender will instead start using the Loan Estimate form.
The new three-page Loan Estimate form must be provided to borrowers on a timetable similar to the current receipt of the GFE. Click here to see a sample of the new Loan Estimate form.
3. The Closing Disclosure
Replacing the HUD-1 Settlement Statement and the final TILA forms is the Closing Disclosure form. This new five-page form is used to disclose many of the terms and provisions of the loan, as well as the financial breakdown of the transaction. Click here to see a sample of the Closing Disclosure form.
4. Timing of the closing
Borrowers will have three days after receipt of the Closing Disclosure to review the form and its contents. Please note that the three-day review period starts upon “receipt” of the Closing Disclosure form by the borrower.
Unless there is some receipt confirmation of the form, the form is “deemed received” three days after the form is mailed. As a result, the review period can be six business days from mailing to loan signing.
5. New delivery date requirements
The title company or closing agent will be required to send their information to the lender approximately 10 to 15 days prior to the closing date so the lender will be able to complete the Closing Disclosure in time to meet the new delivery date requirements.
6. State license numbers
To complete the Closing Disclosure, the title company or closing agent will need the state license number of your real estate company and your individual agent’s real estate license number.
7. The seller’s side
The Closing Disclosure that is being sent to the borrower will not include information from the “seller’s side” of the transaction. The title company or closing agent, not the lender, will be responsible for completing and delivering the seller’s side of the Closing Disclosure.
The Closing Disclosure must be delivered to the seller at or before closing. The title company or closing agent may prepare a separate Closing Disclosure for the seller.
8. Out of the loop
As the Realtor, there is a chance that you will not receive an advance copy of the Closing Disclosure before it is delivered to the buyer.
9. More waiting periods
Any changes to the Closing Disclosure after delivery to the buyer might trigger a new three-day waiting period. There might also be changes that will require additional disclosure or review periods.
Items that might affect these include:
- Changes that affect the annual percentage rate (APR).
- The buyer changes loan products.
- A prepayment penalty is added to the mortgage.
- Any changes and adjustments that affect the value of the property as determined by the lender.
10. Final property walk-through
To try to avoid any unforeseen issues that could delay the closing, the National Association of Realtors is recommending completing the walk-through seven days prior to the scheduled closing.
As Realtors we know that the primary purpose of the walk-through is to make certain that the property is in the condition the buyer agreed to buy it in — that agreed-upon repairs were made and that nothing has gone wrong with the home since the buyer last looked at it.
Because most sellers do not fully move out of the home until the day of or the day before closing, it seems like completing the walk-through seven days prior to closing would not accomplish the walk-through’s primary purpose.
11. Setting the closing date
NAR is also recommending adding 15 days to your normal closing time frame. If you are in an area in which the average closing takes 30 days to complete, NAR is recommending you write the offer up for a 45-day close. On the flip side, it is advisable to explain to your sellers that offers might be coming in with longer closing time periods.
I’ve been pretty critical of the past changes to the real estate forms. I do need to say the new Loan Estimate form and the new Closing Disclosure form are huge improvements over what we have been using. These forms seem a lot easier to understand. I think these new forms will help make the closing process a better experience for our clients.
Once the new regulations kick in, how do you plan to handle the walk-through? Please share in the comments section below.
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