Closing Process Changes: What To Expect
September 28, 2015
New mortgage disclosure rules will take effect Oct. 3, and lenders and real estate brokerages are quickly preparing for what has been predicted to be big changes to home closings.
Mortgage lenders will be required to begin using new consumer disclosure forms on Oct. 3. The changes will merge the HUD-1 Settlement Statement, the Good Faith Estimate, and the Truth-in-Lending disclosure form into two new closing forms: a Loan Estimate and a Closing Disclosure.
Consumers will have more time to review the total costs of their mortgage prior to closing. The Loan Estimate form is due to consumers three days after they apply for a loan, while the Closing Disclosure form is due three days prior to closing. The Loan Estimate form shows the loan amount and interest rate, what the borrower’s monthly payment will be, estimated taxes and insurance, and how much cash is required to close.
Borrowers will face delays to closing if there are any last-minute changes with the financing of their loan. For example, if borrowers decide to change loan products at the last minute – such as switching from a fixed-rate mortgage to an adjustable-rate loan – borrowers will face a three-day delay in the closing to allow for reviews of the new Closing Disclosure form. Borrowers will not have a choice to waive the three-day review period.
Some mortgage experts are recommending that borrowers lock in their mortgage rates 45 or 60 days, rather than the more common 30-day lock, in case there is any delay in closing.
“There's going to be a little bit of a learning curve in the beginning,” says Tammy Felenstein, the executive director of sales for Halstead Property in Stamford, Conn. Consumers should “go with a lending institution that has prepared for these changes and knows what they’re doing.”
Consumers may face slightly longer closing times as the industry adjusts to the new process. The new rules will require lenders, title companies, real estate professionals and insurance representatives to all come together sooner in the process to ensure the disclosures do get out in time.
As such, some real estate professionals say they’re planning to write contracts with 45-day closings instead of 30. About 56 percent of REALTORS® say they plan to change their purchase agreements to allow for a longer timeline for the closing process due to the upcoming changes from new mortgage disclosures rules, according to a new survey by the National Association of REALTORS®. Thirty-one percent of real estate professionals surveyed said they would also add contingencies to the contract.
Eighty-two percent of real estate professionals also say they've taken some training to prepare for the "Know Before You Owe" initiative.
To try to avoid a closing delay from the new rules, 30 percent of real estate professionals surveyed by NAR say they plan to share contracts and amendments sooner with lenders, title insurers, and closing agents. Thirty-three percent plan to perform final or pre-closing walk-through home inspections earlier, and 37 percent say they plan to develop a plan with lenders and title agents to ensure a smooth transition.
The Consumer Financial Protection Bureau has published a new guide for real estate agents detailing all the changes with the upcoming "Know Before You Owe" mortgage initiative. CFPB's toolkit for agents includes sections on how to have on-time closings, an overview of what has changed and the new loan documents, and the ability to share resources with your clients about the new rules.
Also, view a slideshow at Bankrate.com to see additional examples of the new disclosure forms.
Source: "Tour the Loan Estimate Form for Mortgages," Bankrate.com (September 2015); "New Disclosure Rules for Mortgage," The New York Times (Sept. 25, 2015); and "Agents Plan to Extend Sales Contract for TRID," REALTOR® Magazine Daily News (Sept. 3, 2015)
Updated: November 25, 2020